Fund risk as convertible bond issues fall An important area of global funding for companies is at risk of drying up as issuances of convertible bonds hit new lows. The bonds, which pay a fixed income but convert into shares at an agreed price, accounted for nearly half of funds raised in equity capital markets at the peak of their popularity nearly a decade ago. But with interest rates low, companies are opting to issue more conventional debt despite strong demand from investors for convertible bonds. Some fund managers worry that the fall in issuance is so great it could threaten the viability of the market. "Within 18 months, if there is not more issuance we will be facing a universe whose market capitalisation is too small," said Nathalia Barazal, who manages $6bn in convertible bonds at Lombard Odier. David Clott, who manages $3.5bn through Aviva's convertible bonds fund said that while the market did not face an immediate crisis over its viability "there is potential for something like that to occur." "It is definitely an undersupplied market," he said. The warnings came as data showed just 8.7 per cent of funds raised in equity capital markets this year were through convertible bonds, an all-time low according to Dealogic, which has tracked the asset class since 1995. A little over $26.7bn has been raised this year, the second-lowest amount over the same period. Such levels are a long way off those of the boom times in 2003, when 47.4 per cent of funds were raised through convertible bonds. At that time the bonds were so popular they made up nearly half of revenues for one bank underwriting the bonds, said one banker. "There has been no activity on the market in Europe for the last two months," said Pierre-Luc Charron, who manages €2bn in convertible bonds at Amundi. However, Akin Akinloye, head of convertible bonds at Cheyne Capital, a hedge fund, argued that the market for convertible bonds was stagnant but not shrinking. He said these instruments had a shorter life cycle than conventional bonds "To keep the market alive you need constant issuance and to keep it growing you need greater and greater issuance," he said. In spite of the drought, a handful of investment-grade companies have issued convertible bonds this year. Siemens raised $3bn in February, while Adidas raised €500m in March.