Algebris, Italian Firm Launch CoCo Hedge Fund

Mar 9 2011 | 12:09pm ET

Algebris Investments has teamed up with an Italian bank to launch a new fund investing in the latest investment craze, contingent convertible bonds.

Davide Serra, head of Algebris, noted that some €1 trillion worth of so-called "CoCos" will be issued by banks over the next several years. The bonds are designed to help banks meet stricter new capital ratio requirements, and convert to equity if a bank's capital ratio falls below a set threshold.

The new Duemme CoCo Credit Fund is a joint venture of Algebris and Banca Esperia, in which Mediobanca owns a 50% stake. The two firms said their skill in the "correct determining of pricing could represent an important factor of extra return."

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