Fair Oaks Capital, a specialist in collateralised loan obligations (CLO), has launched a Luxembourg-domiciled Ucits sub-fund investing across US and European credit assets.
The weekly dealing Fair Oaks Dynamic Credit Ucits fund aims to generate net target returns of 5% per annum.
The strategy is headed by partners Miguel Ramos Fuentenebro and Roger Coyle, with an investment team spread across London and New York.
The fund complements the firm’s existing Fair Oaks Income Fund, a listed vehicle on the London Stock Exchange that was launched in June 2014.
The launch of the initial share class of the fund is expected to complete on 28 September with close to €150m (£126.8m, $168.5m) AUM. Initial investors include wealth manager 7IM.
“We view it as an innovative and attractive alternative to traditional investment grade corporate bonds, where the yields of the global dollar benchmark are close to historic lows at just over 3% and the duration is nearly nine years – implying a high sensitivity should US long-term yields back up so much,” said 7IM senior portfolio manager Peter Sleep.
“CLOs are similar to investment grade debt, with a higher yield and much less sensitivity to rising interest rates as the loans underlying the CLOs are floating rate and reset every few months. The big issue with CLOs is their relative illiquidity, which is why the fund is only weekly dealing. The pricing can be volatile when the market is falling,” Sheep said.