GE's $120-bn asset unit to increase emerging mkt debt

General Electric’s $120 billion asset management unit plans to increase holdings of emerging-market bonds to take advantage of the global economic recovery.

GE Asset Management (GEAM) has 90 per cent of its $60 billion of debt securities invested in US assets, said Paul Colonna, who has been the Stamford, Connecticut-based unit’s chief investment officer for fixed income since 2007. That compares with a 50 per cent weighting in equities, he said.

“The first step will be increasing our exposure to emerging market sovereign and corporate bonds and after that to other fixed-income areas,” Colonna said in an interview in London. “Emerging markets are well positioned for global growth versus developed countries.”

Emerging economies will grow 6.3 per cent this year compared with a 2.4 per cent expansion for advanced countries, according to International Monetary Fund estimates. Sovereign and corporate bonds issued in developing markets including Brazil returned 18.1 per cent in the past year compared with 10.59 per cent for US debt, Barclays Capital indexes show.

About 30 per cent of GEAM’s assets come from the US pension fund of General Electric, the world’s biggest maker of jet engines and locomotives, Colonna said. A further 20 per cent derives from GE affiliated insurance companies with another 30 per cent belonging to external institutional investors and some retail clients. The remainder includes employee benefit investments.

“The general goal is to follow the path GE has followed worldwide, taking advantage of the knowledge that the company already has,” said Colonna, who joined GE from mortgage provider Freddie Mac in 2000. The company will use external fund managers “where we don’t have in-house expertise,” he said.

Brazilian real-denominated bonds are beating emerging-market debt by the most since September as central bank President Henrique Meirelles raises interest rates, bolstering confidence in his efforts to contain inflation. Local bonds returned 1.6 per cent in the second quarter in dollar terms, compared with an average loss of 1.1 per cent for developing nations, according to JPMorgan Chase & Co’s GBI-EM Broad indexes.

“We are seeing how some big countries in Latin America and other areas are developing their own local debt markets and would like to take advantage of that,” Colonna said.