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Dear Investor,

Please allow me to comment on the news from Berne. I put it in connection with the Cape Fixed Income Fund.

Good things have happened within the Swiss CoCo space recently (you might know the Cape Fixed Income Fund is holding some low trigger Swiss AT1/Tier2 on good Swiss Bank names).

According to the latest FINMA language, low trigger Tier 2 CoCos will be grandfathered until the earliest its first call date and Dec 31st, 2019 but not be eligible for capital purposes thereafter.
After these dates, the bonds will count as ‘normal’ subordinated debt and not capital anymore. This creates a strong incentive for the banks to call these papers as they are simply too expensive as debt instruments without capital accountability. Hence, we expect a very high probability of these papers getting called at the first possibility thus giving the investor a clear expectation as to when expect his investment back. Essentially, this converts this segment of the asset class into a bullet-like maturity structure. Current spreads of around 500 bps within the AT1 and 350 within the Tier 2 space offer great value at this stage and we expect these papers to tighten more over time as the duration shortens towards the call date.

We wish you a (continued) good run with your investments and look forward to your feedbacks or questions you might have. Please don’t hesitate and get in touch with us by phone or mail.

Thank you in advance for your trust.