JP Morgan is planning to launch a Guernsey-domiciled closed-ended fund focused on US-based senior secured loans.
The asset management firm expects to start an offer period from November with trading opening in December. The sterling-denominated fund will target a dividend yield of 5 per cent.
US leveraged loans will be the focus of the launch, a market which JP Morgan describes as “deep and liquid” in comparison with the UK.
The management team, led by Jim Shanahan, has been managing similar US-based vehicles from its Cincinatti base for more than 25 years, with some $35.9bn in assets across the relevant portfolios.
This launch represents JP Morgan’s second new investment trust this year following a Global Convertibles fund in June.
While initially targeted at institutional and high-end investors, the closed-ended nature of the fund means that from launch shares will be available to anyone.
Senior secured loans, taken out by sub-investment grade businesses, represent a relatively untapped market in the UK fund universe.
Ucits rules prevent unit trusts from any significant exposure to loans and only a handful of investment trust managers have ventured into the market. Neuberger Berman and ICG Longbow have launched investment trusts within the past year with, respectively, a global and UK property focus.
Legg Mason has also recently launched a Dublin-domiciled qualifying investor fund through its subsidiary, Western Asset Management, which has a similar US focus to the JP Morgan vehicle. But that is targeted at the institutional market and comes with an appropriately prohibitive minimum investment level of £1m.
The loans are well positioned to outperform more traditional fixed-income assets. On company default the underlying loans’ repayment must be prioritised above all other liabilities, including equity or bonds.
The US secured loan market has provided almost unbroken positive returns. The year 2008 brought a predictable downturn in fortune but that is the only year this century where the senior secured loans sector posted a loss. The drop of 29 per cent was more than cancelled out within 12 months as 2009 saw a 44 per cent uplift.