ALGEBRIS RECORD +45% IN 2012. FIRST HEDGE IN THE CITY. COCO BONDS MAKE THE LUCK OF THE "CAIMAN" SERRA
The time given to Matteo Renzi's electoral campaign did not distract Davide Serra, the financier from the Caymans in the legendary vision of Pierluigi Bersani and who yesterday spoke at the Leopolda at the close of the campaign for the primary elections of the mayor of Florence, from the activity of successful privateer in the troubled sea of European finance.
This morning the Financial Times dedicates a well-deserved portrait to the Algebris CoCo fund, 900 million in funding, or the fund dedicated to the purchase and management of contingent convertibles which is starting to close 2012 with a record gain of 45 per cent, the highest the City's high in a dismal year in which the hedge fund average didn't go above 4,5%.
What is the secret of Algebris “a best-known asset management company in London”, according to the FT? “Two years ago we noted that bank equity yields were destined to drop – replies Serra – while the yield on debt was about to double that of equity. So we focused on credit."
The instrument chosen was the CoCo bond that Serra, without success, also proposed to Monte Paschi. These are particular bonds, which can be transformed, at the request of the issuer, into capital. In return, the underwriter can receive a much higher interest. “The market is becoming more and more sophisticated – comments Serra – Let's take the case of the latest issue of Swiss Re. The conversion into capital is subject to the case that the company does not pay the dividend, which has never happened up to now, and to a series of natural disasters: earthquakes, hurricanes, the collapse of the housing market or the catastrophic fall of the stock markets”.
In short, a very sophisticated tool that only high-level speculators can afford to master without running the risk of bad adventures. So far, Algebris has succeeded, amassing a portfolio that includes CoCo bonds from Credit Suisse, Lloyds Bank and Rabobank, among others. And the future promises good business. According to a study by Barclays, the potential market for CoCo bonds is one billion pounds: the need for new capital posed by Basel 3 favors the take-off of high-yield initiatives. In short, judging by the merctao, it is a golden season for caimans, albeit domiciled in London.
