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Milken conference panelists discuss Asia trade deals, low-return investing environment

Some speakers on a panel at the Milken Institute Global Conference on forces shaping Asia voiced concern about the Trump administration's trade policies with countries in Asia.

The Trans-Pacific Partnership was “a gift to the U.S.,” for trade relations and businesses, said Timothy Dattels, managing partner at TPG Capital Asia who moderated the panel on Tuesday.

Ronnie C. Chan, chairman of Hang Lung Properties, speaking on the panel, said “the world would be OK without the TPP but it would be better with it.”

Mr. Chan recounted that U.S. Commerce Secretary Wilbur L. Ross had been “reassuring” when he said he is not interested in a trade war with China. “I told him that all he had to do is to sell (liquefied natural gas) to China and it would solve the problem,” he quipped.

If he doesn't want to do that, then “who's to blame,” Mr. Chan said.

Tony Fernandes, Group CEO at AirAsia, speaking on the same panel, was more optimistic. “Cooler heads will prevail,” Mr. Fernades said. “TPP will happen.”

In another panel on Tuesday, speakers hashed out the risks inherent in today's investing environment.

This is a “fantastic time if you are a borrower but we are lenders,” said Scott Evans, deputy comptroller, asset management, and chief investment officer of the $170.6 billion New York City Retirement Systems. “It's time to play defense.”

Credit strategies are getting riskier, said A.J. Murphy, head of global capital markets at Bank of America Merrill Lynch. Loans agreements have less protection in the form of covenants for the lender.

“The covenant-lite ship has sailed,” Ms. Murphy said.

Covenants in loan agreements are an "early warning system for lenders," said Robert Kricheff, portfolio manager and global high yield strategist at Shenkman Capital Managaement, a credit and high-yield manager.

Without them, the first inkling the lender has that the borrower is in trouble is when the borrower misses an interest payment, he said.

What's more, future potential earnings are being counted for loans these days, said Robert Kricheff, portfolio manager and global high yield strategist, Shenkman Capital Managaement, a credit and high-yield manager.

While Mr. Kricheff said he does not see a credit bubble forming, Mr. Evans cautioned that bubbles are often spotted in hindsight.

Rewards for a risk-free return is very low, Mr. Evans said. “If everything goes right, we will be getting a modest return,” Mr. Evans said.

He added that he is worried about default risk. The number of covenant-light loans is higher than in 2006 and 2007 and leverage levels are getting very high, Mr. Evans said.