CoCosAug 15 2017

OMGI turns to CoCos for diversification with new fund

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OMGI turns to CoCos for diversification with new fund
ByDave Baxter

Old Mutual Global Investors (OMGI) has launched a fund focusing on contingent convertible bonds (CoCos), as it looks to expand its fixed income offering and offer greater diversifying products.

The Old Mutual Financials Contingent Capital fund, run by Lloyd Harris and Rob James, will typically invest at least 75 per cent in high-quality CoCos, with up to 25 per cent in a combination of equity instruments, collective investment schemes, cash and other bonds. Mr Harris also runs the firm's £457m corporate bond strategy.

CoCos are a form of debt, issued by the likes of insurers and banks, that can be converted into equity under specific circumstances, act as bonds, or get written down when the regulatory capital of the issuer drops below a certain level.

“OMGI’s fixed income funds have invested in contingent capital for some time, with the team well-experienced in managing these investments. There is long-term value in the asset class; therefore, we believe that now is an appropriate time to launch a specific CoCos fund. There are very few opportunities to earn such an attractive yield, especially in a sector that, post financial crisis, is extremely tightly regulated," said Mr Harris.

An ongoing charges figure was not disclosed for the fund.

A small number of asset managers operate in the convertible bond space. CoCos specifically have been hit by setbacks in recent years, including the write down of instruments issued by Spanish lender Banco Popular in June.