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Chris McGuire is Founder and CIO of Phalanx Capital Management, a Chicago-based Japan and Asia focused multi-strategy investment management company he launched in 2005. The firm specializes in Japanese convertible bonds and the Japanese asset swap market, a highly specialized asset class which provides very low correlation to global markets.
In this Opalesque.TV interview, Chris describes why the convertible bond market and asset swapping in Japan are unlike any other asset class in the world and how this strategy can provide investors with uncorrelated returns.
According to Chris, Japan's longstanding near-zero interest rate environment and limited listed options market drive a thirst for yield and massive convertible bond demand. This demand for the hybrid securities, which are part fixed income and part equity, creates opportunity to hedge out credit risk through asset swapping. By stripping out the fixed income component of convertibles and selling the bonds to a counterparty, who in turn repackage and distribute them throughout Japan to hungry regional banks and insurance companies, an attractive equity option remains. Asset swapping thereby either eliminates or severely reduces credit risk and provides non-correlation to global markets. With no listed equity options exchange in Japan, professionals also use convertibles to create optionality in building long volatility portfolios in a large economy where there is very little competition.
In addition, learn about the following:
• Benefiting from a "Warren Buffett" liquidity approach to risk management
• Trade example: KDDI's convertible bond issuance and asset swap
• How the Japanese asset swap hedges Phalanx' portfolio
Chris McGuire is Founder, Managing Member and Chief Investment Officer of Phalanx Capital Management. He manages Phalanx's trading of the Japanese and Asian portfolio. Prior to launching the firm, he managed the Japanese multi-strategy portfolio for Daiwa Securities America. He joined Daiwa from Goldman Sachs where he ran Japanese and Asian relative value trading for the Spear, Leeds & Kellogg division. Prior to "SLK" he was in charge of trading and managing the Japanese convertible bond portfolio for Marin Capital Partners. His prior experiences include managing hedge fund sales for the convertible bond and equity divisions for Merrill Lynch - London, managing convertible bond sales for SBC Warburg-Tokyo, overnight relative value equity sales for BZW Securities, and trading commodity options for his own account on the floor of the Chicago Board of Trade. Chris graduated with a Bachelor of Arts in Communications from Marquette University in 1991.
