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Coronation Launches Two Hedge Fund Notes

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LONDON (–Coronation International Ltd. announced the opening of two new hedge funds of funds structured notes that will be backed Dresdner Bank AG and issued on July 31.

The firm intends to raise ?100 million (US$153 million) with the structured notes. The Coronation Principal Protected Notes and the Coronation Leveraged Notes will be invested in non-directional arbitrage hedge funds set up by managers with at least US$250 million in assets under management and a three-year performance record.

The Coronation Principal Protected Notes will invest in low-risk arbitrage funds and have a guarantee of a 100% return of capital after five years from Dresdner Bank. The bank may use non-recourse leverage or borrowings if the performance of the underlying hedge fund portfolio is at a certain level. The leverage wouldn’t affect the capital guarantee, according to Coronation. The targeted return for the offering for the five years is 8% to 12.5% per annum in sterling net of all fees.

The target return for the leveraged notes is higher, 13% to 26% per annum in sterling net of all fees. These notes will use leverage (provided by Dresdner) of three times the initial investment and will not incorporate a capital guarantee. If the performance of the portfolio does not exceed the cost borrowing or about 5% per annum investors will benefit from the leverage.

Both sets of notes will have a five-year lifecycle with a quarterly redemption that applies after a six-month lock-up period. The minimum investment is set at ?25,000, with minimum issue size being ?10 million for the principal protected note and ?3 million for the leveraged note.

The notes will be managed similarly to the Coronation Relative Value Fund. The fund was launched in January 2000 and is listed on the Irish Stock Exchange. The fund benchmark is two times the rate of return on three-month U.S. Treasury bills. As an investment firm, Coronation specializes in hedge funds of funds, managing US$1.4 billion in assets. The firm’s other hedge fund of funds is the Coronation Global Equity fund, a long/short equity hedge fund of funds that was launched in August 1996.

Canadian Imperial Bank of Commerce as administrator will calculate net asset value on a monthly basis, the values will be published in the Financial Times. Other fund providers are: HSBC Republic Bank and CIBC as custodians and KPMG is auditor.

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