About three years ago, Copenhagen-based fixed-income boutique CABA Capital was preparing to launch what would later become the first fund in its Flex series: a range of vehicles designed to harvest risk premiums in Scandinavian mortgage bonds through a three-year maturity structure. When CABA Flex launched in December 2022, the team projected a net cumulative return of 37 percent over the fund’s three-year lifespan.
As the fund now approaches its scheduled closure, CABA Flex has delivered on plan and exceeded expectations, generating a 42.4 percent cumulative return through the end of October and an expected 44 percent by the end of its term. “In December, our first Flex fund will mature, and we expect investors to receive a return of around 44 percent over the three-year lifespan of the fund,” says Mette Østerbye Vejen, Chief Executive Officer at CABA Capital.
“In December, our first Flex fund will mature, and we expect investors to receive a return of around 44 percent over the three-year lifespan of the fund.”
Strategy and Structure
CABA Flex was designed as a leveraged, closed-end strategy investing in non-callable five-year Danish and Scandinavian covered bonds – high-quality, AAA-rated instruments with very low default risk – while hedging interest rate exposure through short positions in government bonds and interest rate swaps. The strategy employs leverage of up to 15 times to amplify the spread between the long and short legs, thereby enhancing returns. The three-year buy-and-hold approach allows the strategy to capture structural yield spreads between covered and government bonds, while gradually reducing exposure to market volatility as the underlying bonds approach maturity.
The first CABA Flex fund was launched at an opportune time with attractive spreads and was initially projected to deliver a 37 percent return, an estimate it ultimately surpassed. The concept has since evolved into a series, with CABA Flex 3 launched during the summer of 2025 and expected to deliver a 25 to 30 percent cumulative return over its three-year period. “Our CABA Flex funds provide investors with an attractive investment strategy targeting a 25 to 30 percent return over a three-year period,” says Østerbye. “That’s not far off the expected returns of global equity markets, but achieved with a volatility profile that is substantially lower.”
“That’s not far off the expected returns of global equity markets, but achieved with a volatility profile that is substantially lower.”
Deviations from the expected return path depend primarily on movements in interest rate spreads within the Scandinavian bond market. However, this influence diminishes as the underlying bonds move closer to maturity, just as observed with the first Flex fund. The first CABA Flex fund, for example, generated 19.6 percent in its first year, followed by 11.6 percent in the second and 6.7 percent in the most recent 11 months.
Closing the Loop
With the first CABA Flex fund set to mature in this December, investors have been notified of the practical steps ahead. Redemptions will be accepted under normal terms until 15 December 2025, after which the fund enters its closing phase. “Thank you for being part of our first CABA Flex fund,” the team wrote in a recent note to investors. “We look forward to continuing the journey together in CABA Flex 2, CABA Flex 3, and CABA Hedge.”
