Insurer backs Finisterre EM debt fund to comply with Solvency II

DublinAn insurance company has provided seed capital to a Dublin emerging markets Ucits fund managed by Finisterre Capital in order to comply with Solvency II rules.

Finisterre, an emerging markets specialist and part of Principal Global Investors, says it has set up the Finisterre Emerging Market Debt Fund with $55 million (€40 million) of capital for its un-named client that wants to invest in a Ucits product.

Solvency II requires insurance companies investing in offshore products to set aside larger capital reserves, compared to the onshore EU regulated Ucits structure.

Finisterre is marketing the fund to other insurance companies.

The fund deploys a long/short approach similar to that operated across Finisterre’s existing strategies. It has an unconstrained mandate, and will invest in a blend of global emerging market sovereign and corporate credits, local fixed income instruments, local and hard currencies and other debt securities.

The fund seeks to generate high single digit returns over the cycle and offers bi-weekly liquidity.

Paul Crean, co-founder and chief investment officer of Finisterre, which manages $1.7 billion of assets, says: “The Finisterre EM Debt Fund does not track our hedge funds and has its own investment team. The fund will be able to make use of derivatives to express its views and we have the right skill set to hedge for duration risk, spread risk and to apply a macro top-down approach.”

The long/short strategy employed by the fund will be more diversified, have a lower turnover and have a longer-term investment horizon than Finisterre’s traditional hedge fund strategies.

Crean adds: “As central bank liquidity is withdrawn and interest rates begin to rise, the emerging market debt environment is likely to become more challenging and returns harder to find. It will be increasingly important to differentiate from the ‘double deficit’ emerging economies and those less dependent on cheap debt with strong fundamentals.”

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