CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, IG fund flows on the week were $3.590bln. This brings the YTD total to +$311.602bln in total inflows into the investment grade markets which is nearly double the full-year record inflows that occurred in 2012. According to Bloomberg, investment grade corporate issuance for the week through Thursday was $28.005bln, and YTD total corporate bond issuance was $1.267t. Investment grade corporate bond issuance thus far in 2017 is flat y/y when compared to 2016. As we to go to press on Friday morning there is ~$1bln in pending corporate bond issuance slated to print today, as issuers seek to take advantage of a decidedly stronger tone in the market compared to the early portion of the week.

(Bloomberg) Calpers Considers More Than Doubling Bond Allocation to 44%

• The California Public Employees’ Retirement System, the largest U.S. pension fund, is considering more than doubling its bond allocation to reduce risk and volatility as the stock bull market approaches nine years.
• Calpers is looking at a menu of options for its fixed-income target ranging from the current 19 percent to as much as 44 percent, according to a presentation for a board workshop in Sacramento coming up Monday. Equities could be cut to as little as 34 percent from 50 percent. Stocks were the best-performing asset class in fiscal 2017, returning almost 20 percent.
• Bond yields remain at low levels because of persistent weak inflation, central bank easy money policies and global investors chasing income. Raising the allocation would reduce the fund’s discount rate, or average expected return, to 6.5 percent from the 7 percent annual target adopted last year. A lower target would probably require bigger contributions from taxpayers and public agencies to cover pension obligations, a shift that board member JJ Jelincic said he would oppose.
• “We’ve cut the return expectation to the point that employers are screaming, ‘We can’t afford it. We can’t afford it,’ ” Jelincic said. “I personally would be willing to take on a little more risk.”
• The average allocation for public pensions is about 23 percent to fixed income and 49 percent to stocks, according to Nasra data.
• The Calpers board is scheduled to vote on the allocation in December. Almost all of the fixed-income and stock holdings are managed in-house while more complex assets, such as private equity and real estate, are overseen by outside consultants. Allocations to private equity and real assets would stay at 8 percent and 13 percent, respectively, under all scenarios under consideration.
• The allocation revisions occur every four years. Calpers is working to provide for a growing wave of longer-living retirees.

(New York Post) Charter’s CEO butts heads with biggest shareholder

• There’s a battle raging inside Charter Communications, and the outcome could decide whether the cable giant continues its acquisition spree — or gets gobbled up itself.
• Charter’s Chief Executive Tom Rutledge — who last year swallowed Time Warner Cable and renamed it Spectrum, making Charter the nation’s third-biggest pay-TV operator — insists that he can increase Charter’s dominance with still more purchases, sources said.
• The Post reported in June that Charter was weighing an approach to Cox Communications, an Atlanta-based regional cable provider. More recently, rumors have circulated that Charter has been in talks to do a deal with Altice, which most recently scooped up New York-based Cablevision.
• But 76-year-old billionaire John Malone, who is Charter’s biggest shareholder with control of 27 percent of its stock, is meanwhile showing signs that he’s willing to head in the other direction — namely, a sale of Charter at the right price, insiders say.
• “I think Malone is a seller,” one source told The Post. The source added that “Malone, though, doesn’t control Charter,” and “the board is totally behind Rutledge.”
• The Post reported exclusively Nov. 1 that SoftBank, the Japan-based buyout fund that owns Sprint, had rekindled on-again, off-again talks to acquire Charter.
• SoftBank’s billionaire boss Masayoshi Son “has tried in multiple ways to energize Charter,” the source said. “It is an ongoing engagement.”
• High-level talks have occurred, with SoftBank recently offering $540 a share for Charter, a source said.
• Although a deal isn’t imminent, “I wouldn’t count Malone out,” a telecom executive told The Post. “There is a 50-percent chance a SoftBank-Charter deal happens in six months.”
• Apart from keeping his status as a cable bigwig, insiders say, Rutledge appears to be clinging to stock options that, according to securities filings, would pay out tens of millions of dollars if Charter shares rise above the $564 mark.
• “My guess is Rutledge has a few quarters to increase the share price,” the telecom exec said.

(MacTrast) Amazon Said to Have Cancelled Its “Skinny Bundle” TV Service

• Amazon has reportedly cancelled its plans to launch a “skinny bundle” of streaming television channels. Reuters says Amazon was unable to convince networks to allow the online merchant to offer only some of their channels in the base package.
• Apple was reportedly looking to offer a similar type of bundle, but ran into the same issues with content providers. Media firms such as Viacom and Disney, which own multiple networks, do not want streaming services to pick and choose which channels they offer, instead requiring the services to also include their weaker channels along with the more popular channels.
• The online retailer will instead focus on expanding its Amazon Channels service, which offers separate subscriptions such as HBO, Showtime, Starz, and other premium networks to its prime members.