Axiom Alternative Investments, a specialist in bank debt, has launched a new fund dedicated to contingent convertibles, or “CoCos”, a new type of subordinated debt instrument.
Under the Basel III requirements, banks have to hold more capital, which is expected to lead to CoCo issues of several hundred billion euros in the coming years from banks and financial institutions. CoCos offer investors higher yields than conventional bonds, but with a risk that the capital could be converted into equity, if a bank’s capital ratios fall dramatically. Axiom said the new fund will focus on bonds from large European banks and will use fundamental, legal and regulatory analysis to select investments.
Axiom Alternative Investments managing partner, David Benamou, commented: “We see a significant opportunity in this new generation of subordinated debt which is emerging as a result of Basel III with the aim of replacing legacy bonds by 2022. These instruments offer high yields compared to other asset classes and, with a focus on instruments issued by large European banks, we are confident of delivering attractive long-term returns to investors.”