Thames River to launch UCITS III absolute return fund
Thames River, the boutique fund manager which is part of the F&C group, is set to launch a new UCITS III absolute return fund in May focused on global high yield bonds.
The Thames River Global High Yield Bond Fund will be managed by the Thames River Global Credit team, headed by Stephen Drew and Mehrdad Noorani.
The Fund will be unconstrained by any benchmark restrictions and will have a global mandate to seek out the best high yield opportunities while avoiding excessive exposure to single issuers, industries, countries and markets. The managers expect to invest in around 50 holdings with a focus on bottom-up credit selection biased towards credits with good trading liquidity. Bottom-up credit selection will be combined with a macro hedging strategy that aims to protect capital. The managers expect the Fund to invest 70% in developed markets and 30% in emerging markets, with around 80% of the portfolio directed towards high yield bonds with some 20% allocated to the investment grade space. Overall credit quality of the fund will be in the B-/B3 region and the Fund will target a total return of 10% with a target volatility of 10% to 12%.
The Thames River Global Credit team of 12 - which includes dedicated risk and credit analysts, traders, fund managers and a team economist - manages some $1.5 billion of assets in absolute-return focused credit products using a robust investment process which has a strong focus on risk/reward.
The team's managers believe the outlook for high yield is highly attractive as the global economic recovery gathers pace and business and consumer confidence is improving. This is fuelling increased M&A and private equity activity, which is positive for the high yield market, at a time when deleveraging by banks is also helping to ensure a strong flow of new issuance as businesses turn to the credit markets as an alternative to bank borrowing.
Stephen Drew, Head of the Thames River Global Credit team, points to fast-food chain Burger King as an example of an attractive recent issuer of high yield debt. Following its $4 billion acquisition by Brazilian private equity firm 3G Capital in October 2010 Burger King issued $800 million of high yield bonds, redeemable in 2018 with a coupon 9.875%. Drew believes that this well known brand, which has a strong cash flow profile, is underpinned by good fundamentals as its new owners focus on expanding the chain, some 90% of which is franchised, into high growth emerging markets where disposable incomes are rising.
Drewsaid: "Against a backdrop of a rebounding economies and record low interest rates, the high yield market is seeing a rapid decline in defaults and a strong pick-up in recovery rates. We see substantial implied value in high yield credit spreads and this underpins our belief that this is the ideal time to launch a fund with this remit. Over the next decade we expect new issuance of high yield bonds to triple, so we see this as an asset class which will grow over the long-term."