M&G has launched a fund structured as a Qualified Investor Fund (QIF) under UK law, investing in cor...
M&G has launched a fund structured as a Qualified Investor Fund (QIF) under UK law, investing in corporate debt, which aims to achieve an annual net return of 1.5% above Libor. The portfolio will be managed by Dan Gardner.
The M&G European Loan fund is a Dublin-listed, sterling-denominated open-ended investment company (Oeic) and carries a minimum investment threshold of E250,000. Discretionary brokers with more than E25m under management may deal on their clients' behalf.
M&G expects the product to appeal to investors because it can deliver returns similar to those offered by high yield bonds, but only takes the risk associated with investment grade credit.
Leveraged loans have become an area of keen interest recently both to long-only funds, and to hedged versions, in Europe and beyond, with interest strengthened by Morgan Stanley's recent development of protective instruments, credit default swaps (CDS), around the European leveraged loan market. The market's standing has also been strengthened by Standard & Poor's launching a European leveraged loan index earlier in the year.
The loans themselves are issued by companies typically to finance internal growth, acquisitions, mergers and leveraged buy-outs by private equity sponsors, and issuers range across the spectrum of industries and market capitalisations.
Loans issued have the full security over the assets as well as the shares of the issuing company, similar to the situation with plain mortgages and this is a key reason underlying the extremely low capital volatility in the asset class. Leveraged loans also display a lower default rate than that of high yield bonds, according to M&G.
M&G, and its parent company Prudential, have been dealing in leveraged loans since 1999 and are among the largest non-bank investors in Europe, with more than E4bn invested.
The portfolio will contain around 50 loans with an average maturity of three years. During preliminary marketing the group has raised £90m for the product. Income from the fund is distributed quarterly, or there is an income reinvested plan available.
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