Zurich-based Alegra Capital will launch a second collateralized debt obligation equity fund in the first quarter of 2005, with a target size of €100 million. The new fund will be closed-ended and marketed predominantly to insurance company investors, according to Daniel Riediker, partner and ceo.
The new fund will be similar in composition to the €20 million Alegra ABS I (Euro) Fund, the firm's first CDO equity fund, which was launched in July and targets high-net worth individuals. It is largely invested in first-loss pieces of collateralized loan obligations. "CLOs offer among the best returns in the current environment and first-loss pieces in particular are attractive because refinancing spreads have come down so much," noted Riediker. That being said, the fund can invest in any subordinated asset-backed securities.
Riediker said he rigorously avoids potential conflicts of interest when it comes to investing and notes not all CDO funds follow the same code. "Alegra is not aligned with any investment bank which provides funds in return for investment of a percentage of the fund in its CDOs and Alegra does not manage its own CDOs in which it invests equity," he said, highlighting two areas which he sees as potential sources of conflict in offering CDO equity funds.
Several buy-side firms are in the process of launching first-loss funds, including UBS Global Asset Management (BW, 11/15) and Faxtor Securities (BW, 11/1).