An accidental hero
Unlike his primary school peers, Simon Bond never harboured hopes of a career in astronautics, the police force or the cowboy industry. Instead, he says: “I wanted a nice, boring office job.”
Bond started his working life as a chartered accountant (“mission accomplished!”), but found the constant exams a grind. 1986’s Big Bang was creating opportunities in the City, and Bond took up a job as a fund manager’s assistant at Hambros Bank.
It was there, as an equity analyst, that Bond learned about debt markets. As the most junior member of the team, he was always packed off to the bond desk. By asking “a lot of stupid questions”, Bond developed a working knowledge of bond markets.
By 1990, Bond had a change of heart towards study and exams. “Interest rates were at 15%, and I had just bought a house. I couldn’t afford to go out at night. So I started taking evening classes,” he says. In 1991, Bond passed his Register Reps and took a job on the bond desk at Provident Mutual, covering corporate credits, which at that point was “a backwater of a backwater”.
Since then, Bond’s career has grown alongside the credit market’s rise to prominence. In 1996 Bond moved to GE. Although working at a US-based, more credit-centric company was a broadening experience, Bond eventually left GE in order to get back in the centre of things. Literally. “GE was based in Chiswick, and I lived in Chingford. That’s just too much time on the North Circular,” he says.
Axa hired Bond to design and implement an investment process that could be sold to third-party asset managers. The result was the Axa Institutional Long Corporate Bond Fund: 2002’s best-performing fund.
Success at Axa left Bond swamped with offers. After three years, he again felt the need to get closer to the centre of things: a problem for a London-based Axa employee. Rather than move to Paris, Bond moved to Threadneedle Investments earlier this year.
An emphasis on rigorous process has been a common strand in Bond’s career. Building a portfolio is difficult, says Bond. “It’s like the game my boy plays on Southend seafront, where you bash a mole with a mallet, only for another one to spring up somewhere else. Get your duration right, and your sectors are out of line. Fix your sectors, and your liquidity’s not right. So process is very important.”
2002 was made more difficult, he claims, by the fact that every analyst was negative on their sector: not the way to maximise total returns. The Threadneedle process, he explains, forces analysts to match underweights with overweights, and plays analysts off each other in order to create fund manager-friendly research.
Rigour is not enough, however – Bond insists that the process must be flexible. Markets go through different phases that require different approaches: fund managers need to know which mole to hit first.
In the aftermath of the 1997 financial crisis, for instance, investment processes were strategic based and sector driven. Since 2001, however, it has been very much a stock-picker’s market, focused on individual names. The process must match the market.
Looking ahead, Bond believes that the credit market is showing signs of a return to the type of market seen in the first half of the 1990s, when spreads ran in slowly over seven years, and any widening was met by asset swappers putting in a ‘backstop bid’.
He says: “I heard someone use the phrase ‘backstop bid’ at a meeting a few weeks ago. I knew right away that we are heading back to an early ‘90s market.”
While less volatile than the current market paradigm, the return of the slow run-in brings its own danger. Bond’s biggest fear is a blow-up in swap spreads: “We’re still bullish on single-As and triple-Bs, but triple-As have virtually no value any more. Investors will desert triple-As in both directions, into governments and into triple-Bs.”
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