BondsJun 13 2018

Alliance Bernstein launches global Financial Credit fund

Search supported by
Alliance Bernstein launches global Financial Credit fund

Alliance Bernstein has launched a global AB Financial Credit portfolio, offering a dedicated credit strategy investing in this fast-growing sector.

The fund seeks the best risk adjusted opportunities across the capital structure of financial companies around the globe, with a focus on subordinated debt including additional tier one (AT1).

Additional tier one bonds are designed so that, when a bank’s capital ratio falls below a certain level, they are either converted to equity or written off entirely.

These bonds explicitly link their triggers to the bank’s capital position in the form of a capital ratio percentage, which gauges the strength of its balance sheet.

The logic behind AT1 bonds is that, when banks edge towards weaker capital positions, the cancellation of the debt will re-strengthen their balance sheets and reduce leverage, almost automatically.

The AB Financial Credit portfolio is managed by Jorgen Kjaersgaard and Matthew Minnetian, who are supported by a team of credit and quantitative analysts as well as specialist traders.

For the A2 share class, the minimum initial investment required is $10,000 (£7,495).

The fund has no performance target, but under the current market conditions, it expects to deliver Libor plus 5 per cent over the market cycle.

Lee Matthews, director for UK sales at Alliance Bernstein, said: "The differentiating risk factors for subordinated debt can provide attractive risk adjusted returns, especially as rising rates are expected to have a positive impact on bank profitability.

“Given the increasing size of the market and its complexity, we see growing investor demand for a dedicated credit fund investing in this sector.”

Keith Churchouse, chartered financial planner at Guildford-based IFA Chapters Financial,  said: "I would suggest that this is a higher risk investment and with the risk of some form of global recession at some point in the next few years, the default position on debt, subordinated or otherwise, may be increased. 

"Although this market may currently look attractive, it is important to consider this in the context of the current economic cycle and changes that may occur in the future."