Laurium Capital launches Africa USD Bond Fund

BY KIM ZIETSMAN Head: Business Development and Marketing, Laurium Capital

Laurium Capital (Pty) Ltd (Laurium) launched the Laurium Africa USD Bond Prescient Fund in South Africa in December 2019 in the Regional Multi- Asset Flexible sector for clients looking for exposure to a pure fixed-income Africa CIS fund to achieve competitive USD yields and diversify their portfolios with their rand investments. Due to the significant interest received from offshore investors and South African investors wishing to access the fund in foreign currency, Laurium has launched its first Irish-domiciled UCITS fund, the Laurium Africa USD Bond Fund, on the Prescient Global Funds ICAV platform.

The Laurium Africa USD Bond Fund is denominated in USD and has received FSCA approval under Section 65 of CISCA.

Fund details

The Fund invests primarily in USD and EUR denominated fixed-income instruments (eurobonds) issued by African sovereigns, excluding South Africa. A eurobond is a USD-denominated bond issued outside of the United States. There are over 20 African sovereigns issuing eurobonds via the Euroclear markets in Europe.

The Fund aims to outperform the Standard Bank Africa Sovereign Eurobond (excl. South Africa) USD Total Return at lower levels of volatility over time.

African eurobonds

Since 2006, the African sovereign eurobond market has grown significantly to over $150bn and has generated USD annualised returns of 8.9% p.a. The African eurobond market trades around $500m a day. These USD-denominated, sovereign-backed eurobond instruments are settled via the Euroclear markets, carry no local currency risks, nor operational indecencies.

Investment approach

The fund uses fundamental bottomup research, with a valuation bias, to generate a concentrated portfolio with high conviction ideas with a focus on stock picking and risk mitigation. The Fund is invested in a minimum of 75% in eurobonds, typically with a higher weighting over time. It may also invest opportunistically in local currency sovereign and corporate fixed-income securities up to a maximum of 25%.

With global investors on the hunt for yield, African eurobonds currently provide access to a liquid asset class that is offering some of the most attractive USD yields globally. The asset class has grown immensely over the past decade, with over $100bn in outstanding issuance across 20 countries in Africa, excluding South Africa. COVID-19 has provided an opportunity that has not happened since the Global Financial Crisis; spreads have widened providing an attractive entry point, similar to what investors are seeing in the global high yield space, but at half the volatility and risk.

Laurium has been investing across the African markets since the company was founded in 2008. The team’s deep understanding and research across the African region, where data is scarce, provides a competitive edge by producing insights into the health of the underlying regional economies and their ability to pay back debt. Laurium has a strong network of contacts, ranging from underlying corporates to African sovereign policy makers. The firm maintains a flexible investment approach, which has proven to be successful when investing in African markets.

Laurium has an entrenched partnership with the team at Prescient, one that has led to much growth and success in SA. We are now looking forward to achieving our international ambitions with them, starting with our Africa USD Bond Fund, which we’re very excited about.

Reasons to invest in African Fixed Income:

1. Attractive risk-adjusted yields and returns 2. Liquid market, with an investible universe of over $120bn and daily liquidity of around $500m

3. 20 countries issuing eurobonds across Africa with over 83 different issuances

4. Our Fund is currently offering higher yields than Global High Yield and Global EM Fixed Income

5. Actively managed Fund combining majority Africa eurobonds with opportunistic trades

6. Sovereign-backed drives lower default rates than high yield, both historically and going forward.