- Advertisement -
- Advertisement -

Related

Norway’s Only Pure AT1 Fund

Latest Report

- Advertisement -

Stockholm (HedgeNordic) – About a year ago, Borea Asset Management launched Borea Obligasjon, a special fund that solely invests in additional tier-1 (AT1) securities issued by Norwegian savings and commercial banks. “Borea Obligasjon is the only pure AT1 fund in Norway,” portfolio manager Magnus Vie Sundal (pictured) tells HedgeNordic. This pure AT1 fund has now joined the Nordic Hedge Index.

AT1 securities are a relatively young asset class born out of the financial crisis of 2008, acting as a critical instrument in regulators’ post-crisis bail-in strategy. The goal of these securities is to improve banks’ ability to mitigate risks and limit the reliance on the public purse during a banking crisis. AT1 notes, which represent hybrid capital absorbing losses when a bank’s regulatory capital ratio falls below a certain trigger level, can absorb losses either by converting into common equity or suffering a principal write-down before taxpayers have to step in.

Borea Obligasjon predominantly invests in NOK-denominated AT1s issued by savings banks and selected commercial banks. “Most of NOK AT1s are issued by larger banks, but we are happy to buy AT1s from smaller banks that are paying a liquidity premium,” says Sundal, one of the portfolio managers in charge of Borea Obligasjon. “In fact, we find that these banks often have higher leverage ratios and are generally well capitalised, although with somewhat lower lending portfolio diversification,” he emphasises. Borea Obligasjon uses leverage and can raise its exposure to up to 150 percent. A portion equal to the borrowed amount is invested in more liquid AT1s. “We also include USD AT1s issued by the large Nordic banks,” adds Sundal.

These deeply subordinated bonds carry higher yields than traditional fixed-income securities, and Borea Obligasjon seeks to offer investors access to the return potential of this young and growing asset class. “We always aim to offer our clients something they cannot get elsewhere,” says Sundal. “We believe this product is a good contribution to our clients’ investment universe.”

“We always aim to offer our clients something they cannot get elsewhere. We believe this product is a good contribution to our clients’ investment universe.”

The ratings of AT1 securities are several notches below the issuer’s credit rating because of their subordinated status. The AT1’s ratings, however, may not always fully reflect the underlying strength of the balance sheets supporting them. “The Norwegian savings banks are in an exceptional position compared to many peers: they hold a substantial amount of equity, with many posting leverage ratios above 10 percent,” explains Sundal.

“The Norwegian savings banks are in an exceptional position compared to many peers: they hold a substantial amount of equity, with many posting leverage ratios above 10 percent.”

The team running Borea Obligasjon also “believe the Norwegian welfare state represents the ultimate backstop for Norwegian consumers.” According to Sundal, “this helps ensure debt service ability in the retail market, towards which most savings banks are focused.” Sundal goes on to explain that “the organisational structure gives the incentive to replenish banks with equity long before AT1’s triggers on write-downs are reached,” which “gives us comfort that losses will be kept at a minimum, while still offering a decent return in today’s low-yielding environment.”

“The organisational structure gives the incentive to replenish banks with equity long before AT1’s triggers on write-downs are reached. This gives us comfort that losses will be kept at a minimum, while still offering a decent return in today’s low-yielding environment.”

Borea Obligasjon delivered a cumulative return of 9.4 percent since launching in August of last year. In the first seven months of 2020, the fund gained 5.7 percent. “We are very happy with the performance and have seen increasing interest from investors throughout the year,” Sundal comments on the fund’s inception-to-date journey. Borea Obligasjon now has about NOK 1.6 billion under management, slightly shy the NOK 2.0 billion managed by the asset manager’s flagship fixed-income hedge fund, Borea Høyrente.

 

Welcome to the Nordic Hedge Index!

Subscribe to HedgeBrev, HedgeNordic’s weekly newsletter, and never miss the latest news!

Our newsletter is sent once a week, every Friday.

Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

Latest Articles

Othania’s All-In-One Fund Celebrates Five Years

Danish fund boutique Othania is celebrating the five-year anniversary of Othania Balanceret Makro, its all-in-one fund blending equity, bond, and alternatives exposure through Exchange...

Atlant Fonder Crosses SEK 10 Billion Milestone

Strong performance and steady inflows have propelled alternative fund boutique Atlant Fonder past the SEK 10 billion milestone in assets under management. Its flagship...

Nordea PM Joins Lancelot Global as Co-Manager

Lancelot Global, a long-only equity fund with flexible net exposure ranging from 60 to 120 percent, has strengthened its portfolio management team with the...

Quirky Questions – or, A Peoples Business

If asset management were only about numbers, we could all go home and let the calculators get on with it. But calculators are dull...

Navigating CLOs Through ETFs: Opportunities in AAA-Rated Tranches

By UBS Asset Management: Collateralized Loan Obligations (CLOs) have long been a cornerstone of the U.S. securitized products market, evolving from a niche institutional investment...

From Core to Alternatives: The ETF-Driven Approach of a Finnish Wealth Manager

Wealth managers are tasked with designing investment portfolios that align with clients’ needs, objectives, risk tolerance, preferences, and financial circumstances. While high-net-worth clients often...

Allocator Interviews

In-Depth: High Yield

Voices

Request for Proposal

- Advertisement -
HedgeNordic
Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.