Credit specialist Cairn Capital has announced the closure of
its Cairn Subordinated Financials Fund after just over two
years, having notched up returns of 65% and a very strong
The redemption of all the shares in the fund took place on
31 December and all the proceeds have been returned to
investors – two thirds of whom have chosen to reinvest
in other Cairn Capital products, according to the firm.
The fund generated a net return of 64.92% from its launch in
October 2011 to the end of December 2013, giving an annualised
return of 25.89% on an annualised weekly volatility over the
life of the fund of just 7.33%.
"We have managed dedicated legacy subordinated financials
mandates since 2009 and launched the fund in October 2011 at
the height of the systemic crisis, when we saw deep value even
though others were exiting," said senior portfolio manager
"Performance beat our expectations and we no longer believe
the strategy can continue to produce these types of returns.
The opportunity set in subordinated financials is narrower now
and better suited to higher conviction, more focused
positioning or as part of a broader credit strategy."
Andrew Jackson, Cairn’s chief investment
officer, added: "Investors in the fund have enjoyed strong
returns and now that the value to support a dedicated fund has
passed we feel it is appropriate to return
He added: "Subordinated financials continues to be a very
active asset class for Cairn Capital, but more effectively
pursued as part of broader mandates. We are particularly
pleased that to date 68% of the capital previously in dedicated
subordinated financials strategies has subsequently been or is
expected to be re-invested with Cairn Capital –
primarily in broader, multi-credit asset class strategies."
Along with the redemption of the fund, Cairn has also
returned or reallocated capital in all dedicated legacy
subordinated financials mandates managed by the firm. These
segregated mandates, which had been in operation since
mid-2009, generated returns in excess of 110%. The firm said
that over £278 million of investor capital has been
returned or reallocated.
"Cairn Capital sees attractive value in only a limited
number of subordinated financials bonds on both an absolute and
relative basis which no longer supports a thematic long-biased
fund," the firm said in a statement.
"Instead, Cairn feels that those narrower opportunities can
be better exploited in a broader corporate high yield and
crossover strategy which can extract alpha from the remaining
opportunities in subordinated financials as well as in other
London-based Cairn is a credit asset management and advisory
firm that was set up in 2004. It provides a full-service credit
asset management, advisory and securities restructuring
platform with a particular focus on the European credit
markets. Its discretionary assets under management as at 31
November 2013 were $3.34 billion.
The firm launched the Subordinated Financials Fund in 2011
to exploit the significant price dislocation of legacy
subordinated debt issued by financial institutions as a result
of heightened sovereign debt concerns and the perceived poor
capital and liquidity position of European banks.
From the outset the fund was expected to have a limited
lifetime, targeting a return of at least 25% over the first
year and annualised double-digit returns thereafter. However,
returns were fuelled as strong central bank liquidity support,
reduced sovereign concerns and positive steps by banks to
strengthen their capital ratios and reduce leverage all
contributed to lower risk premia – pushing up the
prices of legacy subordinated debt.
As a result, the firm said, the deep value that Cairn had
identified at the time of the fund’s launch
– affording the opportunity to generate significant
alpha in a market characterised by distress and volatility
– had been extracted in a shorter time period than
originally envisaged, although it added that the opportunistic
nature of the strategy and the finite timescale for its
execution had been clearly identified at the