It might seem odd that Australian retail fixed income funds were among the first to be hard hit by exposure to US sub-prime and ABS CDO risk. It is not as if there is even, to use bond market parlance, the Australian equivalent of the Belgian dentist. As Simon Maidment, managing director and head of fixed income at UBS in Sydney, says, Australia’s investor landscape differs markedly from that in Europe or the US. "Historically, retail investors in Australia haven’t owned bonds," he says. "You don’t have people here buying the equivalent of US treasuries or municipal bonds, or AAA-rated Eurobonds from companies like Nestlé. Investors in Australia have been very focused on equities and real estate."
The result, in recent years, has been a perception that it has hardly been worth bothering to market fixed-income products to investors unless they can offer chunky, equity-style returns. "It is true that numerous products are sold in Australia to investors that would not be buyers of the same products in other markets," says Maidment. "Australia, for example, is one of a handful of countries, including the Netherlands and New Zealand, where CDO equity has been sold directly to retail investors in listed form.