The US fund house currently runs $500m (£327m) in hybrid bonds for Japanese institutional clients but wants to offer the strategy more widely. The Neuberger Berman Corporate Hybrid fund, which launches today (November 19), has been seeded with $21m and will be run by Julian Marks and David Brown.
Corporate hybrid investments have characteristics associated with both debt and equities. The bonds are normally long-dated or perpetual with call options. Issuers can suspend coupon payments without triggering defaults, but cannot pay dividends until payments are resumed.
Neuberger said most issuers were dividend payers, which made a suspension of coupon payments unlikely.
The fund house added: “Hybrid debt yields are significantly higher than senior bonds of the same high-quality investment grade issuers.
“Euro denominated corporate hybrid debt currently offers an average yield of over 4%, which is almost 3% higher than the average yield for euro investment grade credit.”
It said the hybrid market accounts for around 3 per cent of euro-denominated investment grade credit indices. The $120bn market is forecast to grow by $25bn to $30bn a year for the “foreseeable future”.
Mr Marks added: “The hybrid universe offers an opportunity to access investment grade names whilst earning returns commensurate with the high yield market.
“The incremental yield offered relative to senior unsecured debt presents an attractive way of enhancing performance in the current low-yield environment.”