Newsmaker: Tim Cook – bond disruptor?
There’s a new whale in the corporate bond market. Apple, Oracle and the other tech giants hoarding half a trillion dollars in cash have joined the ranks of the biggest buyers of bonds, often snapping up as much as half of some new issues, according to people with knowledge of the transactions.
The companies are buying on a scale that allows them to muscle into a market traditionally dominated by big bond funds like Pacific Investment Management Co (Pimco), BlackRock, Vanguard and Fidelity Investments.
Australia’s biggest banks, which rely on offshore debt markets, have sent representatives to Reno, Nevada, where Apple and Oracle’s money-management units are based. It’s a new stop on a circuit that traditionally took in Wall Street, the City of London and the big California investment houses.
Tech giants have increasingly turned to debt markets in recent years as yields evaporated on safer investments, such as US Treasuries. No industry has amassed bigger piles of cash.
Apple, run by Tim Cook, had $171.3bn of its cash and marketable securities in foreign subsidiaries and “generally based in US dollar-denominated holdings” as of March 28, according to a filing. The trend is cutting into traditional investors’ access to new issues.
Getting allocations of new corporate bond deals is one of the easiest ways for managers to outperform benchmark bond indexes because they’re typically sold at a discount to market rates, according to Jason Shoup of Citigroup. The bonds aren’t added to the indexes investors are measured against until the end of each month. That can generate as much as a 0.2 percentage point of additional gains for investors who get in early, Mr Shoup said.
Apple is now one of the biggest buyers of shorter-term debt sold by investment grade companies and goes to source when it buys into deals.
“I am sure asset managers like Vanguard and Pimco would prefer Apple call them and have them manage the money rather than competing with them,” said Kevin McPartland, of Greenwich Associates.
Traditional firms, including Exxon Mobil, Merck and Wal-Mart Stores, are among the names the tech firms favour investing in, sources said.
The scale of activity is raising concerns markets will weaken if the tech firms were to suddenly change tack. (Bloomberg)