30 Mar 2011
LNG Capital is preparing to launch a twin product offering from April 1 targeting absolute returns in European credit with assets under management of over $100 million. The launch features an offshore hedge fund, LNG Europa Corporate Bond Fund, and a UCITS fund, LNG Select Value Strategies.
The hedge fund has run in several formats since July 2001 (including five years as the RAB Capital European High Yield Fund) and has operated since 2009 as a managed account. The UCITS fund is a new addition for LNG Capital and will see its portfolio managers, Louis Gargour and Steven Mitra, run overlays on the credit portfolio to limit downside volatility.
The hedge fund will look at opportunities across the credit spectrum from investment grade to high yield. Strategies will encompass event driven, special situations and relative value approaches. The exact mix of the strategies will depend on the position of the market cycle. The liquidity of the portfolio is high with 90% able to be sold within one week.
Gargour is one of the pioneer active managers in the European credit market, with a multi-cycle track record spanning more than 10 years. The team has consistently outperformed the market with an annualised return of 20% (compared with an average 8% performance for the Merrill Lynch High Yield Index.) This places it in the top quartile of European credit managers.
During 2007 and 2008, the strategy lost 5.92% and 8.31% respectively, underlining the managers’ ability to protect investor capital in very tough market conditions. In both 2009 and 2010, the strategy, including a period when it was run as a managed account for institutional investors, gained over 70% in each year.
The managers also see several short opportunities. “Europe offers a variety of dislocations and short opportunities as a result of difficulties in peripheral markets,” Gargour says. “There are a large number of relative value opportunities because interest rates are expected to rise and investment grade and government bonds are expensive relative to high yield credits.” The portfolio managers also see shorting opportunities in the banking sector and peripheral European sovereign credits.
The hedge fund will have quarterly liquidity, a VaR target of 3.8 and will target returns of 15% per annum. The UCITS fund will have daily liquidity, a VaR rating of 2.2 and will target an annualised return of 10%.
LNG is actively marketing to investors from family offices, private banks and independent financial managers to complement its reach to institutional investors that invested in its managed account offering. It expects the UCITS fund to quickly attract capital from an investor base in the UK, Europe, Asia and the Middle East.
The hedge fund has run in several formats since July 2001 (including five years as the RAB Capital European High Yield Fund) and has operated since 2009 as a managed account. The UCITS fund is a new addition for LNG Capital and will see its portfolio managers, Louis Gargour and Steven Mitra, run overlays on the credit portfolio to limit downside volatility.
“Our edge is that we are highly experienced in the European credit sector,” Gargour said in an interview. “We have been active investors since the beginning of the European credit market. Our investment process and key roles are well defined and the team has a long history.”
The hedge fund will look at opportunities across the credit spectrum from investment grade to high yield. Strategies will encompass event driven, special situations and relative value approaches. The exact mix of the strategies will depend on the position of the market cycle. The liquidity of the portfolio is high with 90% able to be sold within one week.
Gargour is one of the pioneer active managers in the European credit market, with a multi-cycle track record spanning more than 10 years. The team has consistently outperformed the market with an annualised return of 20% (compared with an average 8% performance for the Merrill Lynch High Yield Index.) This places it in the top quartile of European credit managers.
During 2007 and 2008, the strategy lost 5.92% and 8.31% respectively, underlining the managers’ ability to protect investor capital in very tough market conditions. In both 2009 and 2010, the strategy, including a period when it was run as a managed account for institutional investors, gained over 70% in each year.
“The credit market is under broked and under researched, but offers a more attractive risk-adjusted return profile compared to equities,” Gargour says. “Balance sheets are improving and defaults are forecast to be less than 1.5% in 2011, and 1.0% in 2012. High yield and credit is historically cheap versus government bonds and investment grade. The opportunity exists because government and investment grade bonds have moved significantly, but credit has lagged, creating a mis-pricing and an opportunity.”
The managers also see several short opportunities. “Europe offers a variety of dislocations and short opportunities as a result of difficulties in peripheral markets,” Gargour says. “There are a large number of relative value opportunities because interest rates are expected to rise and investment grade and government bonds are expensive relative to high yield credits.” The portfolio managers also see shorting opportunities in the banking sector and peripheral European sovereign credits.
The hedge fund will have quarterly liquidity, a VaR target of 3.8 and will target returns of 15% per annum. The UCITS fund will have daily liquidity, a VaR rating of 2.2 and will target an annualised return of 10%.
LNG is actively marketing to investors from family offices, private banks and independent financial managers to complement its reach to institutional investors that invested in its managed account offering. It expects the UCITS fund to quickly attract capital from an investor base in the UK, Europe, Asia and the Middle East.
“We have produced big returns in 2009 and 2010, but keep investors from losing money when the market is down,” Gargour says. “The key attraction for investors now is that this strategy hasn’t been available to them in recent years.”
