Paris-based Edmond de Rothschild Asset Management (EdR AM) is marketing a new emerging-markets convertible-bond fund that will source most of its investments from Asia.
The fund is targeting $1 billion in assets within a few years, says Bruno Vanier, Paris-based chief investment officer at EdR AM, who signalled plans for the product when he spoke to AsianInvestor in November.
The firm incorporated the fund on December 31, following a strong year for convertible bond performance in 2009. The benchmark global CB index returned 24% last year, while the benchmark emerging-markets CB index gained 38%. EdR AM's global convertible bond fund -- which launched in July -- is already 12% up in euros in seven months (as of February 10).
There is no official performance or volatility target for the emerging-markets fund, says Vanier, but he would be happy with 15% annual returns and volatility of around 10%.
In the short term, EdR AM plans to target European and US investors, who it expects to account for most of the assets, but will also look to raise money in Asia. Vanier has no set regional fundraising targets, but says he would like ultimately to source between 5% and 20% of assets from Asian investors.
Marketing will take place during the first quarter, with institutions and funds of funds likely to form 70%-plus of the customer base, he says, while private banks will account for most of the rest. Vanier expects the fund to be active in the second quarter, with a launch planned "later", although no official date has been set.
As for target investments, the fund is likely to allocate more than 70% to Asian assets, he says. Hong Kong and China will be the major focus, with 25% allocation, in keeping with where EdR AM's expertise lies. The rest of the assets will be sourced from Singapore (12%), South Korea (12%), India (6%), Malaysia (6%) and a small percentage from Vietnam.
"We will also buy convertible bonds in companies that have strong exposure to emerging markets," says Vanier. He cites Japanese vehicle maker Suzuki as one example, which has an operation in India called Maruti Suzuki.
EdR AM is not the only firm looking to benefit from CB issuance, with Swiss firm Pictet having launched a CB fund on February 1, managed by Jabre Capital Partners. Another Swiss firm, Lombard Odier, launched an Asian CB fund in January 2009, which returned 24.2% last year.
A CB is a bond that can be converted into a predetermined amount of the company's equity at certain times during its life through a stock option embedded in the contract. It therefore provides the security of a bond with the upside of equities.