Launched on 24 June 2015, the fund is an Irish-domiciled UCITS offering. It is already registered in the UK and will be for sale across Europe soon.
The management team arrived at the firm together as a result of Neuberger’s takeover of Orchard Square Partners last year.
According to Milner, while the ‘booming credit market’ has been one of the best beta trades for investors in the six years since the financial crisis, ultra-loose monetary policy supporting this trend now appears to be turning.
“While credit quality in general remains historically robust among developed market corporate bond issuers, default rates are forecast to rise and higher interest rates could have an impact on flows in the market,” he said.
“In an environment of tight spreads and even tighter liquidity, increased volatility in credit markets would not be surprising going forward,” Milner added. “This means investors may now need to be more creative to control their risk.”
The managers will apply a ‘rigorous bottom-up credit analysis’ in an effort to achieve equity-like returns from securities higher up in the capital structure, with only large-cap liquid credits being bought. Macro views at to be incorporated, but Milner said no ‘macro bets’ will be taken.
While the team has no firm prediction on the timing of a Federal Reserve rate hike, the portfolio is positioned to profit from tightening. “We still believe both credit spread and interest rate curves are too flat to compensate long-dated risk, and we have designed capital structure arbitrage and relative value trades to profit most with rising rates,” Milner said.
