James Williams, Hedgeweek

Luxembourg regulator authorises first Chinese equity UCITS fund… Muzinich & Co launches emerging market short duration corporate bond fund…

The Luxembourg regulator, the CSSF, this week announced the authorization of the first Renminbi Qualified Foreign Institutional Investor (RQFII) fund under the UCITS scheme.

The UCITS can invest 100 per cent of its net assets in China A shares (shares in mainland China-based companies that are traded on a China stock exchange). In order to authorize such an RFQII UCITS the CSSF the following requirements apply:

  • The fund must be open-ended
  • The experience, qualification and competence of the fund manager
  • The application of appropriate risk management procedures
  • The correspondent bank of the depository and the segregation of assets at the level of the correspondent bank of the depository 

The fund must also fully comply with the UCITS directive as well.
 
The RQFII UCITS scheme is particularly interesting for foreign fund managers using Luxembourg as their platform to distribute UCITS on a cross-border basis. Luxembourg UCITS are a renowned investment scheme distributed in around 70 countries. Accordingly, Luxembourg is the ideal hub to domicile RQFII investment funds and to distribute them globally in order to boost the access to RMB denominated assets worldwide.
 
Corporate credit specialist Muzinich & Co has launched an emerging market short duration corporate bond fund. The Muzinich & Co Emerging Markets Short Duration Bond Fund, an Ireland-domiciled UCITS structure, will invest in a diversified portfolio of short duration investment grade and high yield corporate bonds from emerging markets-focused issuers. The fund will focus on hard currency bonds and is managed by Warren Hyland and Christina Bastin.
 
“The potential returns from emerging markets are very compelling,” said George Muzinich, CEO and founder of Muzinich & Co, “But due to the divergence of returns between countries and issuers, high quality active management is typically required to add real alpha.
 
“We believe our rigorous fundamental research and analytical process enhances our ability to select attractive opportunities. By focusing on shorter-term debt, we believe we are better able to control volatility, which can be higher in emerging markets than in more established ones.
 
“Creditworthiness of underlying issuers is paramount in portfolio construction. We focus on companies that have sound business plans and solid balance sheets. We do not invest in distressed or stressed situations. We aim to generally maintain the duration of the fund at no more than two-and-a-half years.”
 
Warren Hyland, manager of the Muzinich & Co Emerging Markets Short Duration Bond Fund, said: “Emerging market corporate debt is one of the fastest growing asset classes. It has the potential to provide very attractive risk-adjusted returns compared to alternatives such as developed and emerging market equities. 
 
“Many emerging market companies are in better financial shape than those in developed markets, with less debt and higher cash balances. Governance and transparency have also generally improved with time. Over the past few years the credit ratings of EM issuers have converged to a large extent with those of developed market issuers – yet coupons and yields remain more attractive. EM debt’s correlation with developed markets is also typically low, giving investors the potential to enhance returns while reducing overall portfolio risk.”
 
Lazard Asset Management has rolled out a UCITS version of the Lazard Global Hexagon strategy reported FINalternatives this week.
 
The new UCITS vehicle is a long/short equity strategy and has a global mandate. The investment approach utilizes bottom-up fundamental stock selection driven by Lazard’s global research resources and adheres to an investment philosophy that places risk management and capital preservation at its core.
 
Jean-Daniel Malan will manage the new fund. Malan re-joined Lazard in 2008 after working as a hedge fund manager at BlueCrest Capital for two years. He originally joined Lazard in 1998 as an equity analyst.
 
The strategy is made up of six steps: identify candidates; quantify the opportunity; isolate the desired risk; build strategies; transact and monitor, and monetise value.
“We continuously screen globally for undervalued companies that have improving or high and sustainable financial productivity,” said Malan. “Our aim is to give our clients exposure to differentiated and often under-researched investments that offer the best asymmetric risk/reward outcomes. Yet we also have to be attuned to exogenous developments and changes in market sentiment which often present as many opportunities as they do challenges.”

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