FRM Credit Alpha, a Guernsey-domiciled closed-ended investment company traded on the London Stock Exchange, is offering new shares via a placing by Winterflood Securities, following strong
FRM Credit Alpha, a Guernsey-domiciled closed-ended investment company traded on the London Stock Exchange, is offering new shares via a placing by Winterflood Securities, following strong performance since the fund’s launch on April 1 this year.
FRM Credit Alpha, advised by fund of hedge funds manager Financial Risk Management, has returned 8.9 per cent between the launch date and September 30, compared with an increase of 0.86 per cent for the sterling-denominated ML US High Yield Master II Index over the same period.
The fund seeks to generate significant returns over cash over a market cycle, with low volatility and low correlation to global credit markets. It invests in a portfolio of specialist credit hedge funds, with an emphasis on managers that employ fundamental research and/or activism in their investment strategies, as opposed to investing according to macro views on interest rate movements or employing high levels of leverage.
‘We believe the growth in the investment grade and high-yield credit markets over the past decade has created an excellent opportunity set for research-driven credit hedge funds to deliver alpha,’ says FRM Credit Alpha portfolio adviser Ingrid Neitsch.
‘New geographies, regulatory changes and fragmented investor bases lead to market inefficiencies that unconstrained investors like hedge funds can exploit. We continue to emphasise investments in hedge funds that generate alpha through solid fundamental research and activism, and which can generate strong returns using lower leverage.’
Paul Dunning, chief executive of Financial Risk Management in the UK, the adviser to the company, says: ‘Specialist credit has been among the best-performing hedge fund sectors we invest in, and the performance of FRM Credit Alpha has led to it attracting additional investor interest. The portfolio has produced strong performance since inception, despite extremely volatile credit markets.
‘We believe this is a distinctive product, as portfolios of specialist credit hedge funds have shown stable returns and low correlation to equity and credit markets. As a result, FRM Credit Alpha should be attractive to investors looking for a means to diversify their equity or credit holdings, as well as for investors seeking high alpha-generating hedge fund investments.’
FRM Credit Alpha’s portfolio comprises between 12 and 20 specialist credit hedge funds that utilise fundamental research, asset allocation, security selection and activism to invest in credit securities, as opposed to investing according to macro views on interest rate movements or spreads.
In 2001, the firm established a dedicated team to invest in specialist credit hedge funds, up to September 30 this year producing annualised returns of 11.15 per cent, volatility of 3.53 per cent per annum and a beta of 0.11 compares compared with the S&P 500 Index (denominated in USD and net of fees).
FRM Credit Alpha is listed on the Irish Stock Exchange and its shares are traded on the London Stock Exchange’s International Bulletin Board. The minimum subscription amount under the placing is GBP50,000, EUR75,000 or USD100,000.
The prospectus for the placing is scheduled to be issued on November 2, with the announcement of the issue price of new sterling shares taking place on November 20 and the deadline for commitments under the placing falling at 5 p.m. the next day. Dealings in the new shares will begin on November 27.
Shares in the company, which is listed on the Irish Stock Exchange, are eligible for ISAs, PEPs and SIPPs in the UK when acquired in the secondary market. FRM Credit Alpha charges a management fee of 1 per cent on the sterling share class and 1.5 per cent on the US dollar and euro classes, and a performance fee of 10 per cent of NAV gains, subject to a hurdle over the relevant currency Libor and high water mark.
FRM, which has USD13bn in assets under management for institutional and sophisticated investors worldwide, was founded in 1991 and has more than 200 employees in offices in London, New York, Tokyo, Sydney and Guernsey.
