Miami-based investment advisory firm ASG Capital is working to grow its presence within the US offshore market catering to Latin American clients as demand grows for its subordinated debt strategy.
The $86 million fixed income specialist is in the process of expanding the investor base of its ASG Dynamic Income fund, launched in September 2014, as the Luxembourg-domiciled Ucits fund hit a track record of almost three and a half years, said ASG founder and co-portfolio manager Ygal Cohen.
‘We think the focus in Latin America will be important going forward. We’re based in Miami, Florida, and we are getting noticed in the LatAm world as well,’ Cohen said.
ASG has signed a deal to add its ASG Dynamic Income Fund to the product offering of a large US-based advisory platform, he added. The firm isn’t yet authorized to reveal the name of its new potential partner as they are ironing out the final details of the deal.
The ASG subordinated debt strategy is already available on at least three other offshore platforms. Other investors come from countries such as France, Cohen said.
Among the platforms the firm currently has agreements with Pershing, Sanlam Global Investment Solutions and InSight Securities.
Assets in ASG’s Dynamic Income vehicle doubled to $36 million in the past year, added Cohen, who expects the flows to continue and see the fund soon hit $50 million. The firm also runs managed accounts, which bring its total assets to just under $90 million.
Cohen said roughly $1 billion would be the ‘sweet spot’ for target assets given the size of the subordinated debt market.
Growth and opportunity
Cohen and his co-portfolio manager, Steven Groslin, aim to offer returns of 4% to 6% net of fees. The duo focuses on subordinated debt from investment grade ‘household names’ such as Bank of America, though they can also include assets such as preferred securities in the portfolio. Cohen and Groslin don’t use derivatives or leverage in their fund.
The ASG managers have drawn from their previous experience as fixed income traders in the US and Europe to add a ‘transatlantic’ flavor to their fund, an approach that allows them to access a broader bond supply.
This shows in the managers’ 41.65% allocation to financial firms as of January 31, according to the fund’s fact sheet.
‘All our competitors [in the US] are 100%, or 90%-95% in financials because preferred securities are issued by financial companies in the US.
‘The fact that we have this transatlantic approach provides us some diversification outside the financials by having some hybrid corporates in the portfolio issued by European institutions in US dollars,’ Cohen said.
Amid expectations of interest rate hikes, Groslin said he expects lower-yielding and long-duration subordinated bonds to suffer. The managers have been positioned to brave this environment since March 2017.
‘We have an exceedingly low duration, just over two years, where we’re overweight on short-dated bonds or bonds that... switch into variable rates going forward. This takes a huge amount off the risk going forward.
‘In fact, as interest rates go up, as far as we’re concerned, this should increase the value generated by the portfolio as the coupons increase over time.’