The Neuberger Berman Corporate Hybrid Fund is a sub-fund of the Irish-domiciled UCITS fund umbrella Neuberger Berman Investment Funds.
It launched with initial seed capital of $21m (£13.8m, €19.7m) and will be registered for sale shortly across the UK, Europe, and Asia.
The Neuberger Berman Corporate Hybrid Fund is run by portfolio managers Julian Marks and David Brown.
Higher yield
A burgeoning asset class, hybrid bonds issued by well-known, investment grade corporates reportedly have a significantly higher yield than senior bonds from the same issuers.
Accounting for around 3% of Euro Investment Grade credit indices, interest in the asset class is increasing.
A growing market, it currently sits at $120bn with new issuance of $25bn to $30bn forecast per year for the foreseeable future; due to the compelling financial incentives for companies to issue hybrids as a means of raising capital.
Julian Marks, global credit portfolio manager at Neuberger Berman, explained: “The hybrid universe offers an opportunity to access investment grade names whilst earning returns commensurate with the high yield market. The incremental yield offered relative to senior unsecured debt presents an attractive way of enhancing performance in the current low-yield environment.”
Debt + Equity
Hybrids have features of both debt and equity. These subordinated bonds are long-dated or perpetual and have call options at the issuer’s discretion. Issuers can suspend coupon payments on hybrid debt without triggering an event of default; but if they were to do so, the company could not pay equity dividends again until all missed coupon payments were met with all interest paid.
As the vast majority of corporate hybrid issuers pay healthy and growing dividends to shareholders, cancelling a coupon would typically lead to a significant change of dividend policy. There is, therefore, close alignment of interests between corporate hybrid debt holders, management teams, and shareholders when it comes to supporting coupon payments.
