Cheyne Capital News – Cheyne cheers ABS gains

Shamez Alibhai, the manager of Queen’s Walk Investment, told Economic News that the fund started buying up undervalued ABS around 18 months ago, believing that the industry was dislocated. Following a subsequent rise in price tag of the underlying holdings, the fund has started to realise some gains.

In January, QWIL sold 3.4m euros ($ 4.64m) of AAA bonds that are linked to mortgages on residential properties (residential mortgage-backed securities). The average sale cost was 92.four cents versus an typical obtain price tag of 74.two cents, representing an annualised return on these investments of 28.two%.

According to its quarterly results to the end of 31 December, the business also reported a 600,000 ($ 800,000) net profit for the quarter, or .02 per share, an 80% fall from its net profit of three.6m, or .14 per ordinary share, for the quarter ending 30 September.

Returns in the AAA space are starting to contract as a lot more investors commence taking portion, said Alibhai, and Cheyne is searching further down the capital structure, at possibilities in investment-grade mezzanine debt, rated in between AA and BBB.

While these are slightly riskier investments, “it really is danger that we really feel quite comfortable with,” he mentioned.

QWIL took some writedowns on its European mortgage portfolios as it anticipates higher default rates in the quick term. Fair value writedowns for the quarter had been two.4m, compared to .6m of create-ups for the quarter ended 30 September 2009.

In the medium term, however, low interest prices are likely to assist mortgage borrowers and this ought to translate to a decrease default rate.

Alibhai said that QWIL will use its profits to continue to repay its debt and get new assets. He added that the industry for asset-backed securities is gaining in liquidity and transparency as much more investors enter it, but it is nevertheless a long way from becoming efficient and this creates investment possibilities.

“ABS will still be a four-letter word amongst some investors. I do not think we’ve completely unwound the attitude to ABS considering that the subprime crisis,” he stated.

Total cash proceeds of 8.3m euros received in the quarter exceeded the forecast of 5m. The company’s all round money position at the end of the quarter was 13.7bn, compared with a forecast of 10.0m.

The company’s net assets value at quarter end was three.69 euros per share compared to 3.75 per share at the prior quarter finish.
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