Liontrust is preparing to launch an absolute return bond fund next week for head of fixed income Simon Thorp.
The credit absolute return fund will be similar to the Cayman Islands-domiciled long/ short European credit hedge fund which Thorp brought with him from Ilex, the firm he co-founded. However, he says its Ucits III structure will make it “20 per cent more restrictive” than the hedge fund.
The Luxemburg-domiciled fund will invest in the most liquid parts of the European cre-dit market. At launch, it is likely to have 65 per cent in high yield and 35 per cent in investment-grade credit.
Thorp says: “It will have three buckets of different positions. The core portfolio will include improving credits unloved by the market and on the short side credits that will deteriorate over time and are overpriced. Bet-ween 10 per cent and 15 per cent of relative value will be intrasector or capital structure arbitrage, where there is mispricing.
“The last bucket is event-driven. The primary driver of change in the price of a credit instrument driven by financial restructuring, M&A, initial public offering or leveraged buyouts.”
Thorp says he will hold bonds and credit default swaps, will never short any structured cre-dit and will not get involved in private placements. In net market exposure, the hedge fund has a small net long position, which may be mirrored in the forthcoming fund.