Lazard Asset Management has launched the Lazard Global Convertibles Recovery Fund to be managed by Arnaud Brillois and his team.

The fund is actively managed using an investment strategy designed primarily to identify convertible bonds that are likely to experience recovery in their valuations. It will seek investment opportunities presented by sectors or regions that have been underperforming or that are undervalued from either a credit or equity standpoint.

It seeks to invest in new convertible bond (or ‘Co-Cos’) issues that are eligible for investment by UCITS. Convertible bonds’ pattern of return is known as “convex”, meaning they can offer equity-market participation in a bullish environment and downside protection when equity markets are falling.

The fund will aim to take full advantage of this convexity with an anticipated annualised yield of more than 6 percent.

Mr Brillois said in a statement: "The current market distortions make a convertible recovery strategy attractive for investors, who can benefit from convertible bonds that are undervalued.

“Sectors that have been heavily impacted by the downturn are likely to use convertible bonds as their primary financing instrument since convertible bond coupon payments are relatively low, making issuance attractive in times of widening credit spreads. Further, convertible bonds have an embedded call option, so issuers receive a higher price when volatility is high, creating additional incentive for companies to issue convertible bonds.”

The fund will be managed by the same team of portfolio managers and analysts who run $3.3 billion in assets across Lazard's Global Convertibles Strategy.