Convertible Debt and Hybrid Securities

Convertible Debt and Hybrid Securities are notoriously hard to value and near impossible to include purposively within asset allocation and portfolio construction methodologies. As equity-linked financing alternatives now abound, their variants too preclude a one size fits all approach. For example the Bond Hedge & Warrant (“BH&W”),  a structural enhancement to a convertible bond to effectively raise the conversion premium, adds complexity. Hybrid capital securities have evolved to now refer to a range of non-dilutive fixed income instruments that incorporate equity-like features. The accounting treatment for such securities too differs from those applicable to traditional in the United States.  

I highlight these and other considerations in our latest research piece. In this presentation I address five key areas of interest ; (i) What are Convertibles and Why are They Issued?; (ii) Overview of Convertible Debt; (iii) Overview of High-Equity Content Convertibles; (iv) Accounting Review; (iv) Investors and Market Dynamics

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Author: Sameer_Jain

Partner. Sameer Jain is founder of FinTech, the world’s first portal that seamlessly integrates traditional, illiquid and alternative investments within portfolios. Prior to this he was Chief Economist & Managing Director at AR Capital. Before that he headed Investment Content & Strategy at UBS Alternative Investments. At UBS, he served as a non-voting member of the Wealth Management Research investment committee, and as a capital allocator was responsible for all illiquid investing including fund manager selection and due diligence across the platform. Prior to UBS he headed product development & investment research at Citigroup Alternative Investments that managed over $75 billion of alternative investments across hedge funds, managed futures, private equity, credit structures, infrastructure and real estate. Here he led a team that developed proprietary models for portfolio strategy and asset allocation with alternative investments, provided investment support and research to pension plans, sovereign wealth funds, endowments as well as internal clients including Citi Private Bank. Before this he was with Cambridge Alternative Investments and SunGard (System Access) where he travelled to over 80 countries for work across Europe, Asia, Middle-East and Africa. He has written over 30 academic and practitioner articles on alternative investments with thousands of downloads at SSRN, presented at over a hundred industry conferences and has coauthored a book, Active Equity Management. Mr. Jain has multiple degrees in engineering, management, public administration and policy and is a graduate of Massachusetts Institute of Technology and Harvard University. He is a recipient of the Alfred Sloan Fellowship and subsequently was a Fellow of Public Policy and Management at the Harvard Kennedy School of Government for a year. He holds Series 7 and 66 securities licenses.

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