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S&P Credit Shot Serves as Wakeup Call
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Written by Richard E. Morris   
Thursday, 22 December 2011
Investment strategists agree that the Standard & Poor’s credit rating service fired a shot across the bow of Congress and the Obama administration with its announcement Monday of a negative outlook for the AAA debt rating of the United States.

“The national mood right now is one where people are expecting Washington to start dealing with the debt, and this (credit rating announcement) is an opportunity for the president and Congress to take some action,” said Robert Tipp, chief investment strategist of fixed income at Prudential Financial Inc.

The S&P report indicated there’s a 33% chance it would downgrade U.S. debt in the next two years.

Steve Van Oder, fixed income strategist at Calvert Asset Management Co., said he believes “it was a good thing that the ratings agency brought the issue to more of a public market.”

As Mr. Tipp noted, the ratings announcement is less of an imminent threat of change in the nation’s credit quality as it is a serious wakeup call for lawmakers. The United States has never lost its AAA credit rating, but the government is running a $1.5 trillion deficit and carrying a $9 trillion debt, which adds up to a 60% debt-to-gross domestic product ratio.

“This is a consequential statement, given the extent to which the AAA rating contains borrowing costs for all of American society, but it also impacts the rest of the world which uses the dollar as a reserve currency and the most liquid bond markets in the world,” said Mohamed El-Erian, chief executive and co-chief investment officer at Pacific Investment Management Co.

“All this can be avoided if the U.S. were to converge on a common vision of medium-term fiscal adjustment and start implementing such a reform package,” Mr. El-Erian said.

Mr. Tipp saw the ratings announcement as something that lawmakers could leverage as a reason for fiscal restraint.

“Now they can use this as an outside force to justify making some difficult changes,” he said. “I would like to think this will be the most visible shove they will need, but time will tell.”

SINGLE-MANAGER HEDGE FUNDS GROW IN NUMBER: New single-manager hedge funds launched in 2010 totaled 1,184, up 51% from 783 funds that opened in 2009, according to a PerTrac analysis of fund information from 10 hedge fund databases.

There were 352 new hedge funds of funds launched in 2010, up 15.8% compared to 304 fund debuts the prior year, according to a report released last week by the software and reporting systems company.

PerTrac’s analysis of established hedge funds found 9,572 in operation as of Dec. 31, 73% of which managed less than $100 million. Of the 3,196 hedge funds of funds analyzed, 70% managed less than $100 million and 108 funds managed more than $1 billion.

Single-manager hedge funds managed $1.6 trillion and funds of funds managed $518 billion, both as of Dec. 31, according to PerTrac’s report.

“One clear area of growth has been in the number of single-manager hedge funds,” said Lisa Corvese, managing director, global business strategy, in a news release.
Last Updated ( Thursday, 22 December 2011 )
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