Pete Drewienkiewicz

Articles from Pete Drewienkiewicz

  • Lessons from the “Taper Tantrum”

      Part 5 of the Asset Class ‘Back to the Future’ series. series. Head of Manager Research, Pete Drewienkiewicz, looks at how liquid and illiquid opportunities have evolved since we produced Asset Class 2013. ******************** Asset Class 2013 discussed, as ever, a wide range of opportunities.   From the liquid (Risk Parity, Trend Following)... the less so (Commercial Real Estate Debt, Private Finance Initiative Debt, and Middle Market Lending).   We also revisited a couple of previously mentioned asset classes. Namel ... more
  • How did two Returners fare in Manager Research?

      I’ll admit, when I was first approached about the concept of taking on a “returner”, I can remember harbouring doubts. I was concerned about the practicalities of taking on experienced hires (albeit often experienced in different fields) into an intense, technical and hectic environment on a temporary basis. Would they be able to contribute? What if they weren’t able to work the same hours as everyone else? Would they learn quickly enough? For me there was a specific challenge - the ability of the “returners” to participate evenly i ... more

    Friday’s big news that Bill Gross was to leave PIMCO, the bond house he co-founded in 1971, almost instantly led to questions being asked about bond market liquidity and what the possible impact might be on investors.   Bond market liquidity has come under a lot of scrutiny of late, if I had a pound for every time I’d been shown the graph below (a quick Google search shows many versions  – hat tip to FT Alphaville in this case) then, well, I guess I’d have at least £25 (just about enough for a round in the City…). It seems like a relat ... more

    The tightening of liquid credit spreads means they are no longer attractive against many schemes’ required return to full funding, however, other attractive credit opportunities do still exist.  The chart shows how spreads have tightened across the liquid credit universe, which has particularly affected higher credit beta instruments. The hunt for yield in a QE world has led to institutional investors globally chasing the same assets, particularly where the securities offer contractual cashflows with underlying security in case of default. Many assets which seemed to offer ... more

    1. Is there risk of regulatory change occurring which changes the attractiveness of opportunities?   Infrastructure is one area where regulatory considerations can come into play. Where one is investing in debt, which consists of a contractual stream of cashflows from an entity there are likely to be two ways in which regulatory change could affect this investment. Firstly, the risk that similar financing becomes available to the borrower at more attractive rates and they will prepay the loan (see Q 5 below). Secondly  there is the risk that a regulatory change may alter the c ... more

     Late on Friday evening Moody’s announced the downgrading of the UK’s credit rating from Aaa to Aa1, a move which followed the agency’s February 2012 decision to put Britain’s rating on negative outlook. This was returned to stable, meaning that no further change in the rating (in either direction) is anticipated over the next 12 to 18 months. The key factor in the downgrade was the worsening outlook for UK economic growth, which is presenting a considerable headwind to the coalition government’s attempts to stabilise the debt to GDP ratio (now expected ... more

    The immense growth of Liability Driven Investing (LDI) over the last decade has made credit (debt, bonds, fixed income) a much more familiar asset class to UK pension schemes, which have been following a road well trod by insurance companies through the years.. However, most pension schemes have not yet discovered the full range of opportunities and continue to access only a small portion of the ‘Total Credit’ market. Ten years ago, equity allocations by UK schemes were typically quite concentrated, with the majority of equity holdings being UK-listed. Indeed, as recen ... more

    Paul Volcker remarked in 2009 that the only valuable financial innovation of the last 20 years had been the ATM. He was wrong. Securitisation is an incredibly powerful financial innovation. But as Peter Parker was so memorably told by his father in Spiderman, "with great power comes great responsibility". Volcker, like many pundits and market participants since, tarred the entire structured finance spectrum with the brush of the subprime CDO explosion. The credit crisis teaches us that responsibility was not properly respected and observed, it does not tell us that securitisatio ... more

    What is happening?     The Over the Counter (OTC) derivatives market is about to undergo a significant regulatory change, as a result of which almost all commentators forecast a considerable increase in the cost of trading these instruments.  Title IV of the Dodd Frank Act (DFA) in the US and the European Market Infrastructure Regulation (EMIR) in the EU will permanently alter the way in which OTC derivatives are settled, collateralised and reported. Despite the 3 year exemption enjoyed by the pension funds, it is of utmost importance that trustees understand th ... more

    As Liability Driven Investment (LDI) strategies become more popular, I thought it would be useful to highlight the process and methods by which investment banks look at credit risk and credit lines. I have put together a series of 4 shorter pieces which should hopefully answer quite a lot of questions. Part 1:  Putting Credit Lines In Place The initial decision on whether to extend credit, a process bankers regularly refer to as "putting lines in place" is usually, perhaps surprisingly, based more on revenue projections than on credit considerations. This means ... more

    As mentioned in my first blog on credit, typically a CSA will be put into place alongside an ISDA schedule. There are a few key numbers and terms that go into a CSA which frame the main variables of the agreement  - perhaps the most commonly discussed will be the: - Frequency of the collateral calls - Threshold amount - Minimum Transfer Amount (MTA) - Currency of the agreement In recent times, equal if not greater scrutiny has come to be placed upon the constitution of the assets to be pledged as collateral, that is the "eligible collateral", and the ... more

    There are some other aspects of derivative credit provision that deserve some scrutiny. First, there are other elements which a bank's credit department will look at to take an overall view of the amount of credit which it is appropriate to extend.  These include: - Size of the total pension fund (rather than just the assets controlled by this particular client) - Extent to which a legal charge could easily be ascertained over the assets of the scheme in question - Whether any leverage is present in the scheme. The existence, or lack, of a strong and committ ... more

    Coming back to the CSA for a moment, one of the most important factors to be agreed in a CSA and one which often escapes high level scrutiny but which can dominate negotiation is the eligible collateral – that is to say, the assets which are eligible to be posted as collateral under the agreement.  There are several key factors which will be considered by the bank, which can usually be separated into one of three camps: - how easy it is to accurately value the collateral - how easy it is to liquidate in the event of a default (these two are usually closed correla ... more

Pete is Head of Manager Research at Redington.

He started at Barclays Capital in 2002 on the Frequent User derivatives desk, providing hedging solutions for banks, building societies and project finance issuers before moving to UBS in the Summer of 2004 in order to build out UBS’s coverage of derivative frequent users.

In 2006 he formally took over responsibility for coverage of LDI pensions managers and life insurance companies. In 2009 he moved to RBC where he initiated coverage of pensions and insurance clients on both interest rate and inflation derivative products as well as gilts, including gilt TRS and forwards.

He was also responsible for covering bank liquidity managers and assisted a number of the UK’s new start up banks in the construction and acquisition of appropriate liquidity buffer portfolios for FSA purposes.