Prudential unit bet on risk assets in first quarter amid 'scare'

[TOKYO] Prudential Financial Inc's money management business bought risk assets in the first three months of the year as concern that the US economy would shrink triggered a "short-term scare," according to the company's chief executive officer.

"We think that the recession story got quite overblown in the first quarter," said David Hunt, the chief executive officer of PGIM, in an interview in Tokyo Thursday.

"That somehow spooked a bunch of fears, which is what led a lot of people to shift out of risk assets."

The US$963 billion money manager put more funds into corporate bonds, high-yield debt, structured instruments and real estate, according to Mr Hunt. He didn't specify what investments the company made.

The Prudential unit poured its money into riskier assets as market expectations of a US slowdown increased, with the median probability for a recession in the next 12 months jumping to 20 per cent in a Bloomberg survey of economists in February, the highest in three years.

Those odds have fallen since then to 15 per cent in April while yields on US high-yield bonds have dropped to 8.6 per cent from a high of 10.2 per cent in February.

Federal Reserve Chair Janet Yellen said Thursday the American economy shows "tremendous progress" following the financial crisis and is nearing full employment.

PGIM's Mr Hunt said he doesn't expect the US or any other big developed economy to go into recession in the next 18 months.

As a long-term investor whose parent company is the second- largest US life insurer, market swings like in the first quarter sometimes offer opportunities for PGIM, he said.

"Our clients can take that kind of 20-year view," Mr Hunt said.

"You have to have a little bit of the stomach to go through those cycles."

BLOOMBERG