ING Investment Management (ING IM) announced the launch of a covered bond fund earlier this week that will invest in mortgages.
Roel Jansen, head of investment grade credit at the firm, said the market in covered bonds has grown very rapidly as these assets have become a major source of funding for banks.
Seeded with €100 million, the fund will be co-managed by Jansen and Dirk Frikkee, senior portfolio manager.
ING IM says there will be a strong focus on risk management, such as looking at issuer credit quality and using a dedicated bond analyst to monitor the cover pool.
The ECB has been involved in covered bond purchase programmes in recent years to support the eurozone, most recently in November last year with its second programme in which it spent €40 billion.
“This institutional support has positively impacted the asset class and spurred interest from investors,” said Jansen.
Asset-backed securities containing mortgages - and which came to be seen as toxic following the collapse in the sub-prime mortgage market starting in 2007 - are typically different to covered bonds in that holders in the latter should benefit from a guarantee by the issuer (typically a bank) and from a preferential claim on the assets in the cover pool. Should an originating bank fail to make payments on a covered bond for any reason, interest payments from the underlying mortgages would go to investors.
ING IM already manages €1.4 billion in the asset class dedicated investment strategy.
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