Axiom Alternative Investments, a specialist in instruments issued by financial institutions, has launched Axiom Contingent Capital, a French-regulated investment fund dedicated to Additional Tier 1 and Tier 2 Contingent Convertibles (CoCos).
The firm says the implementation of Basel III requirements has produced a new generation of bank subordinated bonds, which amounted to €100 billion euros at the end of 2014. Additional Tier 1 and Tier 2 CoCos were created to replace legacy bonds, which did not fully serve their purpose as capital instruments for banks.
The Axiom Contingent Capital fund will take advantage of the high yields offered by this new asset class, through a selection of issuers and the close monitoring of conversion risk and potential coupon suspension.
The fund will aim to outperform its benchmark, the Bank of America Merrill Lynch Contingent Convertible Index, through a focus on bonds from the large European banks, which will make up around 90% of the fund’s exposure.
David Benamou, managing partner, Axiom Alternative Investments, says: “We see a significant opportunity in this new generation of subordinated debt which is emerging as a result of Basel III with the aim of replacing legacy bonds by 2022. We are aware that some investors, particularly those in the wealth management sector, are struggling to access this asset class, so believe that our Ucits-compliant offering will provide an effective solution.”
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