The world's biggest manager of bonds decided not to buy into a $500 million debt offering by the Chicago-based hedge fund Citadel, according to the Chicago Tribune. The Newport Beach-based Pacific Investment Management Co. told the Tribune that it couldn't "get [its] hands around" the hedge fund's business. And that's likely because Citadel's business is trading and investing, and it is very secretive about its investment strategies. The memorandum describing the offering revealed very little about Citadel's strategies (although you can be sure people are still combing through it hoping to turn up something useful).
From the Tribune:
With the tremendous amount of cash looking for new investments, issuers have been able to secure looser terms in bonds than with banks, said Jim Cusser, a portfolio manager at Waddell & Reed in Kansas City, Mo., who isn't planning on purchasing the Citadel bonds.
"The bond market is a little less prudent than banks are," Cusser said. He also noted that hedge funds are already highly leveraged. "It looks like we may be piling leverage on leverage."
The sale shows that "credit markets are pushing limits," said Mark Kiesel, an executive vice president who oversees $50 billion in corporate bonds at Newport Beach, Calif.-based Pacific Investment Management Co.
Pimco, manager of the world's biggest bond fund, didn't buy the Citadel debt, Kiesel said.
"When you don't like the business, and you can't get your hands around it, no spread is enough," he said