By James Thorneley Alliance Capital Management (ACM) is to launch an offshore closed-end fund that w...
By James Thorneley
Alliance Capital Management (ACM) is to launch an offshore closed-end fund that will invest in European high yield corporate bonds
The Dublin-domiciled ACM European Enhanced Income fund will offer a 9% yield. The portfolio, managed by Chris Wilson, will consist of around half investment grade securities and half in high yield corporate bonds. No less than 25% of total assets will be held in investment grade securities
Assets will be invested predominantly in fixed income securities denominated in euros although some investments may be in other European currencies. The fund's mandate permits investment in additional asset classes including senior and subordinated corporate loans, both secured and unsecured, convertible fixed income securities and preferred stock
Interest in the European corporates bonds market has intensified since January. Already this year Framlington, Norwich Union and INVESCO are among the groups that have launched funds investing in the sector
According to Alliance Capital, historically the corporate bonds markets in Eurozone countries were relatively small and illiquid compared with US corporate bond markets. As a result, European corporates had to rely on the US corporate bond market in order to raise large issues. The group said the introduction of Emu created the potential for a large single market for issuance. With the creation of the euro, issues in Europe of corporate bonds have increased dramatically
Alliance Capital's fund comes on the back of the launch of INVESCO Leveraged Income fund, a similar closed-end vehicle, although the Alliance fund is not as highly geared with around 25% bank borrowings whereas the INVESCO fund is estimated to be 60% geared. The INVESCO fund has raised £75m, £30m in equity, and will commence trading this Friday. Another difference bet-ween the funds is that the European Enhanced Income fund is available by way of a Pep tran-sfer. The INVESCO vehicle is domiciled outside the EU in Guernsey. Both vehicles are Isable
Although the fund's total assets will be denominated in euros, the shares are in sterling and will pay a dividend in the UK currency. Dividends will be payable quarterly but there will an additional payment covering the initial period of investment to 31 December. The initial management charge will be around 5% and the annual fee is 0.65%. Intermediaries will receive up to 3% commission
The closed-end vehicle has a fixed life of five years after which a continuation vote, req-uiring approval by 75% of shareholders voting, will be held to extend the life of the fund. After 10 years the board intends to offer shareholders a number of options including the possibly the opportunity for re-investment in a replacement vehicle or a cash exit
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