InvestmentsOct 21 2020

Quilter becomes anchor investor on Premier Miton Coco fund

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Quilter becomes anchor investor on Premier Miton Coco fund

Wealth management firm Quilter has shifted millions of pounds into a recently launched Coco bond fund at Premier Miton. 

The Premier Miton Financials Capital Securities Fund invests in the convertible bonds of financial institutions, such as banks and is held within the multi-manager funds operated by Quilter. 

Quilter’s investment came after it had removed its capital from the Merian fund previously run by Lloyd Harris and Robert James.

A bond being convertible means that, in the event of the bank being in financial trouble, the bond would turn into equity in the bank.

These bonds became a feature of the financial landscape after the global financial crisis as regulators sought to create an alternative to government bailouts of struggling banks.

Turning bonds into equity means the level of debt owed by a struggling bank would fall, reducing the risk of it going bust.

Premier Miton launched the fund on September 14 {for professional investors only}, following the hire of Mr James, who together with fixed income fund manager Mr Harris had previously run a Coco fund at Merian Global Investors.

Mr Harris joined Premier Miton from Merian earlier this year and runs a range of bond funds.

Mr James said: “When Lloyd and I left Merian, a number of the Coco fund’s biggest clients took their money out immediately, and put it into an ETF. Quilter was one of those clients and thankfully they have now become a seed investor of this fund at Premier Miton.”

Mr James said the fund was primarily viewed as an income investment by clients, with Coco bonds yielding about 5 per cent. The higher yield relative to most bonds is a function of the extra risk that these bonds could turn into equity. 

In most cases, the bonds become equity if the core tier one capital ratio of a bank falls to 7 per cent. The current level is around 14 per cent for most UK banks.

The advent of Covid 19 meant UK banks were forbidden from paying dividends to shareholders, but are still permitted to pay the interest on their bonds.

Data out this morning showed UK dividends had halved in Q3 this year compared with last year.

Mr James said the regulatory response to the pandemic has been broadly a positive for investors in Coco bonds. 

He said: “The bonds with the highest yields tend to be in the banks that might be in trouble, so we tend to avoid those. At the other end of the spectrum, the bonds of some of the highest quality banks, such as those in Scandinavia, offer rather low yields, so we try to avoid those.”

Quilter Investors also announced yesterday (October 20)  it had appointed Premier Miton as manager of two bond portfolios.

Through the appointment, Premier Miton will become a ‘global partner’ of Quilter Investors, managing the Corporate Bond and Diversified Bond funds which are predominantly available through the group’s managed portfolios and multi-asset solutions.

Inflows suffer

Meanwhile, inflows at Quilter stalled in Q3 this year as a perfect storm of coronavirus uncertainty, its upcoming platform migration and the return of Brexit to the economic table took its toll.

For the three months to September, Quilter reported total net flows of £400m. In its half year results published in August the firm saw net flows of £1.4bn in the first six months of 2020.

Chief executive Paul Feeney said: "Despite a more challenging market backdrop, we are pleased with the substantial year-on-year improvement in net flows.

"Gross flows were broadly stable and outflows relating to the departure of a specific team in Quilter Cheviot reduced to £31m in the quarter from £615m in the third quarter of 2019."

Quilter is expected to complete the next stage of its delayed platform migration with advisers and clients on the last weekend in November, with 80 per cent of assets set to be migrated by the end of the year. 

Earlier this year the company increased the estimated budget for its platform migration by £15m to £200m, having battled delays earlier this year as a result of the coronavirus pandemic. 

Mr Feeney said: "Our strategic plans are progressing well with our major migration of assets from our existing platform to our new platform confirmed with advisers and clients to complete in the last weekend in November.

"Our capital return programme remains on track, we continue to control costs tightly and current trading continues to be in line with our expectations.",