Old Mutual Global Investors has launched its first “CoCos” strategy, a type of fixed income investment.
The Old Mutual Financials Contingent Capital Fund, made up mainly of contingent convertible bonds (the “CoCos”), aims to generate income and capital growth from a mix of fixed and variable rate debt securities issued by financial institutions with minimum capital requirements, such as insurers and banks.
At least 75% of the fund will generally be invested in contingent convertible bonds, a form of debt that can convert into equity or get written down when the regulatory capital of the issuer drops below a certain level.
Created in the wake of the financial crisis, CoCos were designed to increase banks’ ability to bear losses beyond their equity buffers. They typically offer a higher rate of interest than traditional bonds, lower volatility than European bank equities and can act as a good income diversifier in portfolios.
Up to 25% of the fund will be invested in a combination of equity instruments, collective investment schemes, cash, government or other bonds.
Old Mutual Global Investors has assets under management of £36.6 billion and is part of Old Mutual Wealth, which in turn is part of London-headquartered Old Mutual Group.
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