Financially-focused asset manager, Axiom Alternative Investments has announced its intention to list a new regulatory capital closed-ended investment fund on the London Stock Exchange.
The announcement is the second time Axiom has approached the IPO market with the strategy. It withdrew the first offering in December 2014 after market volatility surrounding the Greek elections and fighting in Ukraine.
The new vehicle, Axiom European Financial Debt Fund (AEFD) is seeking to raise more than £100 million ($152 million; €136 million) via the listing for investment into regulatory capital securities issued by European banks. The underlying instruments will be primarily junior debt and typically convertible, hybrid debt and equity instruments such as contingent convertibles.
As Basel III rules for banks and Solvency II insurance regulations come into effect, the volume of loss-bearing hybrid debt securities issued by financial institutions has grown massively. The market is estimated at around €1,000 billion and AEFD will seek to capitalise on that through its strategy which includes five separate strands, Axiom's Gildas Surry, told PDI .
The firm will target a weighting of around 15-20 percent, respectively, in restructuring and special situations. The three other strands will focus on lenders and insurers that are considered going concerns, Surry explained. Between 25-30 percent of the capital will be invested in both illiquid and liquid relative value investments while another around 30 percent will go into mid-cap origination, he added.
An example of mid-cap origination is the French mid-size life insurance companies that have been issuing tier two capital into the private placement market. Deals which they can source via Axiom's existing network, Surry noted.
The strategies are projected to produce yields ranging from 7-30 percent. Special situations should yield 25-30 percent; restructuring 7-25 percent; illiquid relative value 6-16 percent; liquid relative value 7-8 percent with mid-cap origination producing yields of 9-11 percent, said Surry.
When the firm announced its intention to list last year, the statement from the time noted that tier one credit spreads are around 150bps over the long-term average. This still stands, explained Surry, adding that while the top-tier names have come in, the market has bifurcated with lenders still short of capital under new standards, producing higher spreads.
Axiom has been managing a separate account with the same strategy since 1 January. The account had delivered gross annualised returns of just under 13 percent, the firm said in a statement.
The new vehicle has lined up an anchor investor for the capital raise, Surry confirmed, declining to identify the investor.
The investment strategy will be managed by Axiom Alternative Investments and is targeting a dividend of 6 percent of the £1 issuer price per share in the first financial year of operation and net returns of 10 percent over the seven-year lifetime of the fund. The fund will charge a management fee of 1 percent of net asset value (NAV) on the first £250 million, falling to 0.8 percent above that.
The fund will employ some leverage – up to 50 percent of certain instruments with a gearing cap set at 20 percent of NAV.
Liberum is acting as sole financial adviser and bookrunner for the listing which is expected to complete in mid-October.
Founded in 2006 and based in London and Paris, Axiom Alternative Investments manages around €500 million in assets. The firm has four open-ended UCITS funds as well as separately managed accounts.