TwentyFour eyes £150m fixed income trust launch

Burgeoning fixed income boutique TwentyFour Asset Management is looking to raise up to £150m in an investment trust launch for investors seeking refuge from mainstream bond markets.

The TwentyFour Select Monthly Income Fund investment trust will aim to deliver total returns of 8-10 per cent a year by investing in niche markets such as European leveraged loans and mezzanine asset backed securities.

The trust will target an initial payout of 6p per share paid monthly – a yield level slightly above 6 per cent on the initial net asset value of 98p.

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TwentyFour is looking to raise between £100m and £150m on its initial fund raising, backed by broker firm Numis Securities.

Conventional bond markets rallied in the recent financial crisis years, boosted by central bank asset purchasing programmes. However, prices have fallen and liquidity has dried up recently as the beginning of the end of the central bank support era has presented itself.

This is leading many long-term bond investors to seek alternatives to the more traditional fixed income markets –government bonds, investment- grade credit and high yield.

TwentyFour has enjoyed rapid growth since launch in 2008, thanks to its focus on niche areas such as asset-backed securities.

The launch comes as Axa’s Nicolas Trindade, a rising star of the corporate bond fund sector, recently increased his exposure to ‘floating rate notes’ from 2.5 per cent to 10 per cent. These bonds increase their coupon payments in line with a linked rate and can protect investors from interest rate rises.

JPMorgan Asset Management last year launched a Senior Secured Loans Fund investment trust, investing predominantly in US senior secured loans. But Threadneedle had to scrap ambitions for an asset-backed securities investment trust launch last year, after missing its £200m fundraising target.

The TwentyFour trust will be managed by the same team behind its Dynamic Bond fund, including founding partner and chief executive Mark Holman.

John Magrath, partner and head of distribution at TwentyFour, said judging from the interest shown by investors, he believes TwentyFour will hit its fundraising target.

The shares are on offer between February 19 and March 4, with the group looking to place them on the London Stock Exchange on March 12. TwentyFour said the annual management fee would be 0.75 per cent, measured against the lowest of either the share price or the net asset value. There will be no performance fee.

The trust resembles the group’s open-ended Dynamic fund, but it will employ more of a buy-and-hold strategy because of the illiquid nature of the sub-investment grade securities it will hold. The group said this makes a closed-ended structure ideal for the investment strategy.

Examples of the securities TwentyFour will invest in:

Financial bonds

Many of the firm’s staff have a banking background so claim to be able to spot opportunities in this sector – with one such being a Lloyds hybrid bond that yields 12.25 per cent and matures in 2020. Bonds of this type, which can be turned into equity should certain triggers be met, are highly sought after, but this issue was only £57.2m so is too illiquid for most. TwentyFour said because of the illiquidity its current yield of 9.02 per cent is 600 basis points higher than equivalent liquid bonds.