Chenavari Toro Income Fund [LON:TORO], is an investment trust offering from Chenavari Investment Managers, a London-based European fixed income fund manager, and is part of the Association of Investment Companies’ Debt – Structured Finance sector.
Domiciled in Guernsey, the GBP206m fund will celebrate its tenth anniversary next May, and is managed by Chenavari founder, Frederic Couderc, a former Bear Sterns banker. He is assisted by Mick Vasilache, who prior to joining Chenavari was running a EUR1.1bn (GBP910m) European Leveraged Credit fund for Cerberus Capital.
The investment manager was set up soon after the global financial crisis of 2008, at the point when the credit markets had imploded along with bank lending, and private credit was transitioning into a mainstream asset class in Europe. The Chenavari team specialised in structured finance, focusing on pricing, structuring, and risk management corporate and non-corporate loan pools, and through its own Collateralised Loan Obligations (CLOs) platform built a business. This accelerated after 2021 when banks were forced to deleverage.
Exposure to the European ABS market
The Chenavari Toro fund aims to generate attractive, risk-adjusted returns, through investing, and in some cases, trading opportunistically, in structured credit markets or asset backed transactions via three sub-strategies: Public Asset Backed Securities, Private Asset Backed Finance and Direct Origination.
The ABS (asset-backed securities) market includes collective financing vehicles whose collateral is future cash-flows from loans towards physical assets like cars or residential mortgages but can also include credit card receivables or music royalties. What makes ABS different is that unlike corporate loans, which are secured on the promise of a company to pay them back, ABS are secured on physical assets, like a car or a building and if the loan isn’t paid back, the asset can be seized.
ABS are created though the process of securitisation, where a special purpose vehicle, or SPV, acquires a pool of assets and simultaneously raises debt financing through the issuance of ABS to fund the purchase of the assets. ABS carry investor-friendly features intended to help protect against loss and improve liquidity, including bankruptcy remoteness, prioritization of payments, overcollateralisation, excess spread, amortisation, professional servicing, and diversity of payers within each underlying pool.
The Chenavari Toro fund includes these in its investment universe as well as investing on a buy-to-hold basis in the originators of securitisation vehicles.
Over the last year Chenavari Toro is the second-best performing fund (on a share price total return basis to 22nd November) in its six-fund sector with a +36.6% return, against a sector average of +24.9%. It was pipped to the post by the GBP377m Blackstone Loan Financing [LON:BGLF] fund. However, the Blackstone fund is winding-down and selling its assets.
Consistent performance
Over five-years Chenavari Toro returned +56.1%, 7.2 percentage points ahead of the sector average return and in third place. Blackstone again took top position. Couderec said in a recent letter to shareholders: “One of the key themes of the market (which has subsequently reversed) was a concern and expectation that the rate and unemployment cycle had decisively changed, leading to a rebalancing of risk towards fixed income and long duration.”
The fund trades at a discount to premium of -21.7% and has an ongoing charge of 1.45%.
The fund’s top five holdings as at 30th September 2024 were:
| Investment | Weighting |
| TULP 2024-1 A | 10.7% |
| FIOS 2X A1 | 6.8% |
| BOPHO 6X SUBB | 6.5% |
| TCLO 9X SUB | 6.0% |
| TCLO 2X SUB | 5.4% |
Source: Chenavari Investment Managers
The fund was 41.4% invested in ABS and CLO Risk Retention products, and 51.8% in Public ABS and CLO, with a 6.7% exposure to Spanish Real Estate. In geographical terms, Chenavari Toro had 22% in the Netherlands with 14% in both the UK and France, and 10.8% and 10.2% allocated to Luxembourg and Spain respectively, with its largest two sectors being Commercial Services and Healthcare.
Chenavari Toro is very different to many of the investment trusts we’ve covered, but with the private credit market expected to grow 15.8% on an annualised basis over the next four years, is a vehicle that the retail investor can climb aboard to gain access to this emerging debt market.
