| When Standard & Poor's downgraded Mannesmann from single-A to BBB+ on November 24 following the German company's bid to buy the UK mobile-phone operator Orange, it caused howls of pain in the offices of bond fund managers all over euroland. Many had considered familiar names like Mannesmann to be the safe way to transform their government-bond holdings into a credit portfolio. Instead, they realized that Europe's soaring M&A activity can hurt creditors of higher-grade companies. Shareholder value can mean bondholder losses. Bond fund managers have also struggled with the fact that while they typically have to manage risks against a bond index, euro corporate indices are poorly diversified and patchy in their liquidity. Disintermediation in Europe has happened at an uneven pace so far: while telecoms companies and financial institutions have embraced the corporate bond market, the same isn't true for, say, consumer goods manufacturers. The heaviest bond issuance comes from the sectors with the most mergers and acquisitions. Once again, the M&A dynamic has made fixed-income investors' lives difficult. With the first year of the euro corporate bond market complete, Euromoneyspoke to a group of leading fund managers about their investment methods, experiences in euro credit so far, and hopes for 2000. |