The unit currently has more than ¤1 billion under management and specialises in issuing equity notes. These are diversified portfolios of low-risk corporate bonds and loans aimed at institutional investors and high-net-worth individuals. Investors commit funds for a typical period of five years and achieve a return based on the ability of the borrowers involved to meet their repayment obligations.
Investment philosophy
“We look to provide investors with an alternative to equities, property and cash,” Geissel says. “We see investors beginning to look for an absolute return product — put simply, one that can say whether investors have made or lost money. They’re no longer happy to let asset managers hide behind performance indexes. It’s little consolation if you’ve lost heavily on equities but are told you’ve outperformed the benchmark index.”
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Buying and selling
Geissel favours investment-grade debt and seeks out leading international bond issuers such as IBM, BT and General Motors. Geissel’s portfolio returns are based only on the relevant corporates’ ability to repay and are unaffected by reported earnings. Returns are more stable than equities as a result.
Geissel has still felt the global downturn, however. “We launched our first transaction — the Blue Chip Funding portfolio (BCF) — in December 2001, which had an overall size of €1 billion. It had a turbulent first year. Moody’s investor services said there was a record number of downgrades that year and the portfolio suffered one default, Worldcom.
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“Our gross portfolio yields tend to be low, reflecting the low-risk quality of the portfolio,” Geissel says.
Non-recourse finance is used to leverage portfolios and optimise returns. Geissel explains: “By leveraging up, we can significantly enhance returns.”
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Performance
“Notwithstanding the Worldcom default, an investment in the BCF portfolio is yielding a return of 12% per year, which in the current low-yield environment is quite attractive.” Geissel says that the return would have been in excess of 20% were it not for the Worldcom default.
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Outlook
“The outlook for credit as an asset class is very strong and we see huge growth in it in Europe, as we've seen through the mutual funds market in America,” Geissel says. He believes companies are reducing capital expenditure and have little appetite for acquisitions. He feels this may result in lower growth and bodes poorly for equity markets.
Dolmen is currently planning two new products. Its high-income credit fund will invest in bonds backed by financial assets, such as residential mortgages. This will have a target yield of 12% per year and a minimum investment of €250,000. Dolmen will also target the German life assurance market with a product that aims to achieve a 7% annual return.