Cheyne hedge fund spots RBS opportunity

September 21, 2010

M&A is on the up again and hedge funds are getting ready – last week we revealed Cheyne Capital had raised over $100 mln for an event-driven fund.

The fund will concentrate on ‘hard’ news (as opposed to rumours of deals), but, as suggested in their name, such funds can look at a wider range of events than just M&A, including restructurings, debt refinancings, asset sales, share buybacks and so on.

In Cheyne’s case, it has spotted what it thinks is a great opportunity in Royal Bank of Scotland debt.

Co-manager Michel Massoud explains:

“In RBS’s tier 1 instruments we’ve found two that had embedded in them the option, at the discretion of the holder, to
be redeemed at par if the bond is not called at its call date.

“We bought the bond at an average of 97 and we’ll get the coupon until it is redeemed. It’s a 16-17 percent unlevered annualized return for an investment that we think is very safe.”

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