M&G will launch an investment trust to invest in all areas of the public and private debt markets.
The M&G Credit Income Investment Trust will aim to generate coupon-driven income with low asset value volatility, targeting a long-term dividend of three-month Libor+ 4 per cent a year.
M&G is aiming to raise more than £250m through an initial public offering, with its parent company, Prudential, subscribing for 25 per cent of the shares.
About 70 per cent of the assets of the trust will be in investment grade bonds, but illiquid and alternative investments will also feature.
Its remit will include investing in assets such as asset-backed securities, commercial mortgages, direct lending to small and mid-sized companies, infrastructure-related debt assets, leveraged loans to private equity owned companies, as well as public debt instruments issued by corporates or sovereign entities.
The trust will be managed by Jeremy Roberts who has been a Prudential employee since 1983 and has managed the fixed income team of its life and annuity funds since 1993.
Brian Dennehy, of Dennehy Weller and Co in Chiselhurst said: "M&G undoubtedly have a pedigree and strength and depth of expertise in this area which is difficult to match.
"But with the non-government debt markets suffering from both a lack of quality and severe liquidity problems, and with rates moving up after a very extended bull run for credit, is this the time for such a fund to be launched? Will retail investors and their advisers have sufficient understanding of this and the downside risks? I’m not sure."
Patrick Connolly, of Chase De Vere, said: "This is an interesting launch which can allow investors to access a wide range of fixed interest assets which typically, because of liquidity concerns, wouldn’t be available within an open-ended structure.
"M&G has huge research resources and are very experienced at running these types of assets, add to this a competitive yield and the ability to provide diversification alongside other bond holdings and there is a strong overall proposition.
"However, investors need to be comfortable with the additional risks of using an investment trust structure and have some understanding of the underlying holdings, which may be higher risk than bonds held in conventional fixed interest funds."
david.thorpe@ft.com
