AXA Investment Managers and ABN AMRO have structured an innovative capital-protected fund for retail investing in credit-default swaps. Gilles Dauphine, fund manager at AXA in Paris, believes it is the first of its kind to be issued under the UCITS III directive in France. UCITS III authorization means the fund, dubbed Patrimoine Obligation Croissance, can be sold retail and it can apply for registration across Europe.
AXA combined its track record for active credit management with the structuring capabilities of ABN AMRO, said Dauphine. The fund is capital protected by constant proportion portfolio insurance, in which a proportion of assets are moved between the CDS fund and a cash fund depending on the volatility of the CDS fund. AXA has also bought a guarantee from ABN AMRO to protect invested capital in the event of a market gap. Dauphine explained the guarantee was required by the French regulator.
Credit-default swaps have mostly been traded by banks' proprietary desks and hedge funds. Synthetic collateralized debt obligations have been sold to private banks, but credit sales officials have struggled to explain the concept of credit events to retail investors. But the tide appears to be turning as Calyon launched a fund linked to credit derivative indices for the retail market in November (DW, 11/5).
Investors are looking for alternatives to equity and bonds to provide returns, according to Dauphine. "We feel people are becoming more sophisticated," he said, adding, "Credit is a new story and there is interest in it." Harald Reczek, head of investment products distribution at Bank Leu in Geneva, agreed its clients are beginning to consider investing in credit. "It's something that we are looking at as an alternative to traditional investments," he added.
The fund will launch in France at the beginning of March, said Dauphine, and the aim is to raise EUR100 million. AXA plans to either register the same product in other jurisdictions, or issue separate tranches of the fund abroad.
