LONDON, Sept 22 (Reuters) - Axiom Alternative Investments islaunching a fund to invest in loss-bearing bonds issued byEuropean banks and insurers, as they look to strengthen balancesheets before the onset of tighter rules on capital reserves.
The fund manager said on Tuesday it was looking to raise atleast 100 million pounds $153.46 million) of firepower for theAxiom European Financial Debt Fund (AEFD) by way of a placing ofordinary shares listed on the London Stock Exchange.
Axiom estimates European financial institutions to issue 1trillion euros ($1.1 trillion) of these types of bonds -- whichinclude Contingent Capital securities or CoCos, subordinateddebt and junior subordinated debt -- to better match theirassets against business risks, and to protect themselves frommarket shocks, as required by Basel III and Solvency II rules.
These securities tend to offer attractive yields compared totraditional equities or bonds because they serve as emergencysources of capital in times of financial distress and the risksthat investors lose money on these securities are greater.
Banks can issue CoCos up to the value of 1.5 percent oftheir risk-weighted assets and HSBC, UniCredit and Banco Santander are among those lenderswho have already issued CoCos to bolster capital.
Axiom has run a separate account modelled on AEFD's proposedstrategy since Jan. 1, and delivered gross returns of 12.9percent as at end-August. AEFD is targeting a net total returnin excess of 10 percent annually over a seven-year period, andwill target dividends equating to 6 percent of the issue pricein the first financial year.
($1 = 0.8961 euros)($1 = 0.6516 pounds) (Reporting By Sinead Cruise, editing by David Evans)
HSBC Holdings (HSBA)
