EUROPE – Lyxor Asset Management has launched a UK subsidiary that will distribute the French company's traditional products but also develop a new business line, expanding into credit management.
At the beginning of this month, Egret Management, the debt fund management subsidiary of Société Générale Group – which is itself the parent company of Lyxor AM – was transferred to the French asset manager and rebranded as Lyxor Asset Management UK.
Egret, which has been regulated by the FSA since 2006, specialised in the senior debt business, managing more than €720m in assets through its first credit fund.
Pierre Gil, the newly appointed chief executive at Lyxor Asset Management UK, told IPE the UK subsidiary would target local pension funds directly, and that credit management "made sense" for this type of investor.
"While, pension funds showed some appetite for CLO products before the credit crunch, they are now looking for more secured and transparent credit product such as senior debt funds," he said.
"It is also fair to say that, traditionally, pension funds would be reluctant to invest in this type of product, but the current low-yield environment has pushed them to diversify from traditional fixed income assets and look at new sources of yield."
Gil went on to say that Lyxor Asset Management was on the verge of launching a second senior debt fund, extending the strategy developed by Egret.
The fund will invest in LBO loans and will remain unleveraged.
"In the current low-yield environment, pensions and insurance companies need to find new sources of yield so senior debt makes much sense", Gil said.
"The yield is higher than investment grade bonds, and it's less risky to high yield bonds because senior loans feature covenants that are designed to limit the issuer's default risk.
Gil went on to say that since the structured credit crisis in 2008, investors require much transparency so the investment vehicle Lyxor will launch will not be a CLO but an unlevered fund.
According to Gil, the LBO loans targeted by the new fund will be floating-rate loans and will therefore enjoy a protection against any rise in interest rates or inflation.
Gil also pointed out that pension funds, which tend to have longer-term horizons, are less concerned about the asset class's main perceived drawback – illiquidity.
"Investing in a fund that has a trading horizon of between six and eight years is not an issue for a pension fund, which can also take an illiquidity premium on its investment," he said.
The French asset manager is also planning to expand its ETF business in the UK following the listing of 14 ETFs on the London Stock Exchange in November last year and the development of 'smart indexing'.
Lyxor Asset Management UK is now seeking to expand its 20-strong team.