London-based heavyweight CQS, one of the world’s most renowned credit-focused hedge fund managers, has seen a clear trend in investor demand for yield product in its CQS Asia Fund this year. The fund, managed by Jean-Christophe Blanc, uses convertible bond arbitrage, quantitative equity, credit and fixed income trading strategies to lock-in returns, which so far this year stand at +3.3 per cent. Most noticeable, Blanc tells Hedgeweek via email, has been demand in high yield (HY), which has also been the case in the convertibles sector: “South East Asia, Indonesia and the Philippines in particular, and also Chinese properties, have performed strongly.” Emerging market high yield products have been attracting interest from Western investors for some as they move away from Eurozone sovereign debt: Indonesian 10-year sovereign bonds alone offer a 7.98 per cent yield. And with Asian equities taking a hard hit in May, the returns on debt in the region are likely to be significant for convertible bondholders should the markets recover as forecast. As Blanc explains: “We’ve been surprised by the strength of South East Asian countries’ fixed income markets,” adding that there is no particular country the Asia fund is steering clear of at present, unless liquidity becomes a problem. 2010, however, has hardly been an easy year for hedge funds. “The key challenge has been investor concern that the problems of 2008 will be repeated,” says Blanc. “Although current conditions are completely different – the supply/demand balances both between long only/hedged and domestic/international investors.”