The $10 billion Mercer implemented consulting trusts have backed the trend to using fixed interest managers as high-alpha providers by seeding a new IXIS-Loomis Sayles global absolute return credit opportunities fund with $40 million.

The fund, which is currently only available in Australia, will target the LIBOR index rate plus 4 per cent per annum over a full market cycle and is hedged back into Australian dollars. It will be launched today. The fund has an 80 per cent allocation to high-yield credit and emerging markets and 20 per cent allocation to Loomis Sayles senior loan fund but will swap that allocation depending on the economic cycle and interest rate changes. High interest rates favour the higher allocation to high-yield credit and falling interest rates will favour the 80 per cent allocation to bank loans. The support given by Mercer for this fund is likely to boost the whole fixed interest sector, especially those managers which have strong credit capabilities. But these sorts of fixed interest products are likely to compete with equities and hedge fund managers more than the managers of traditional government bond funds in the portfolios of sophisticated investors. The product is initially an institutional product with a minimum investment of $5 million and an all-inclusive fee of 70bps but IXIS Asset Management managing director, Karyn West, said the group would target retail platforms over time. West first presented the concept to Jae Park, Loomis Sayles chief investment officer and head of the global asset allocation team, two and a half years ago. The GAA team researched economic data over the past 50 years to determine the best allocation for the product. According to West, the product offers the return of an absolute return fund without the cost. It can also be included as part of a fund’s fixed interest allocation. “It can go into an alternative bucket or the fixed interest bucket,” she said. The product’s structure was finalised nine months ago and West says another four to five institutional investors have expressed serious interest in the fund.

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