After the partners have determined the scope of the partnership, they must communicate quickly and often to make sure both sides understand the limits of the partnership. My friend Larry works for an airline that recently offered its employees stock in the airline in exchange for pay cuts. The company broadcast its offer through the media—emphasizing the opportunity for employees to own the airline, just as management does with its stock ownership program. But Larry discovered he did not have the same benefits and privileges the managers had; while managers fly for free, the union employees pay a nominal fee for their passes. Larry resents the fact that while he takes stock instead of dollars, just like management, he doesn’t enjoy the same treatment. The managers’ free seats undermine the credibility of the public relations campaign aimed at building employee morale.

During a period of high market uncertainty and increasing negative event risks the correlation with equity markets tends to rise. Fund flows in the high-yield market are directly related to the developments in the equity market.

Fund Flows are a function of:

• Expected risk
• Interest rates
• Inflation
• Default rates
• Economic outlook
• Event risk