Lazard Rathmore Alternative Fund

Investment rationale

The fund is designed to seek absolute returns through a combination of capital appreciation and income over a three-year market cycle, within the hedged convertibles asset class. The fund has a risk indicator of 2 and a recommended holding period of 3 years, while the target market is investors with a medium- to long-term horizon who want absolute returns and are willing to accept a medium level of volatility. It is suitable where the investment does not make up a substantial part of an investor’s portfolio. Its distinct role comes from a convertible arbitrage approach combining capital-structure and special situations/event-driven sub-strategies, with both long and short exposures and extensive use of derivatives.

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How the strategy works

The objective is to achieve absolute returns through a combination of capital appreciation and income over a three-year market cycle. The fund invests in hedged convertibles and can invest directly or through derivatives in convertible securities, corporate and sovereign bonds across investment grade, non-investment grade and unrated issuers, global equities, preferred shares, warrants, exchange-traded notes, currencies, rates, swaps and credit default swaps; it may invest more than 20% in emerging markets. The portfolio at 31 August 2026 had long market value of 144.1%, short market value of -109.4%, net market value of 34.7%, duration of 0.8 years, and equity shorts were the main hedge against long bond exposure. Performance is measured against one or more of HFRX Relative Value Fixed Income Convertible Arbitrage, S&P 500, Russell 2000, Bloomberg US Aggregate, ICE BofA Global 300 Convertible, ICE BofA US High Yield and MSCI World, but the fund is not constrained by these benchmarks. The fund is actively managed, broadly hedges portfolio currency exposure into USD, uses derivatives for hedging, gaining exposure and speculation, and the C Acc USD share class is an accumulation class; shares can be dealt on any day the New York Stock Exchange is open and the recommended holding period is 3 years.

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Investment philosophy

• The fund is a hedged convertibles portfolio best described as convertible arbitrage, where a long convertible bond position is typically hedged with a short stock position in the same company.

• Returns are sought from credit and volatility exposures, while the team also focuses on extracting value from special situations and events to add alpha alongside traditional convertible arbitrage drivers.

• Position-level hedges are actively traded to monetize market volatility, and the strategy combines two relative-value sub-strategies: capital-structure/convertible arbitrage and special situations/events.

• As of 31 August 2026, 160 trading strategies covered 90% of long market value, with incubated strategies accounting for the remaining 10%. Long market value was concentrated in Volatility (64.7%), Hedged Credit (19.2%) and Special Situations (16.1%); top long positions included InterDigital, Lumentum, Snowflake, IREN and Cloudflare convertibles.

• Risk and exposure management are reflected in a net market value of 34.7%, delta of 83.7% offset by an equal hedge, portfolio credit hedges of -1.8% of LMV, rho hedge of -4.7% of LMV, broad use of equity shorts and treasury hedges, and expected leverage from derivatives of 200% to 800% of fund value, not exceeding 1200%.

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Management team

The fund managers are Sean H. Reynolds & Team.

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Distinctive features

The fund is differentiated by its explicit convertible arbitrage structure, pairing long convertible bonds with short equity in the same issuer and actively trading those hedges to monetize volatility. The team’s emphasis on special situations and event-driven alpha supplements the more standard credit and volatility return sources in this segment. The portfolio is built from a large number of trading strategies, with specific substrategy buckets for volatility, hedged credit and special situations, giving it a more granular relative-value structure than a directional convertible fund. It also offers daily dealing tied to New York Stock Exchange business days and, at the share-class level, charges a 1.25% annual management fee with a performance fee of 20% of net gains over a hurdle rate capped at 5% per year and over a high-water mark.

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Risks

There is no capital guarantee or protection, so investors may not recover the amount originally invested. The fund has a risk indicator of 2, but this does not capture all risks, including risks linked to convertible arbitrage and currency risk. The fund can take both long and short positions, and it may lose value on both simultaneously; its use of derivatives for hedging, gaining exposure and speculation can increase both profit potential and loss potential, and the PRIIPs text states expected leverage is between 200% and 800% of fund value and will not exceed 1200%. Currency exposure matters because returns can be affected by exchange-rate moves between the fund’s base currency, investment currencies, share-class currency and the investor’s home currency, even though portfolio currency risk is largely hedged into USD. At 31 August 2026, the portfolio had substantial unrated exposure, a concentration in Information Technology and a North America bias. Its permission to invest more than 20% in emerging markets and its use of equity shorts, treasury positions and other hedges add market, credit and hedging risks.

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Asset manager

The fund is a sub-fund of Lazard Global Investment Funds plc and is managed by Lazard Fund Managers (Ireland) Ltd, which is authorised and regulated by the Central Bank of Ireland. Lazard Fund Managers (Ireland) Limited is part of the Lazard Group. The fund managers are Sean H. Reynolds & Team. Lazard Asset Management has distribution and contact presences in New York, London, Brussels, Paris, Frankfurt, Milan, Madrid, Zurich and Dubai.

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Performance commentary

The manager says August 2026 featured a recovery in equity markets, declining stock volatility, volatile but range-bound global rates, and a recovery in US high yield credit as spreads narrowed. In convertibles, basis remained modestly weak for a second month because stock volatility declined and the interest-rate outlook became more uncertain, even though equities recovered and credit spreads stayed benign; weaker valuations were also linked to the end of earnings season and lighter trading volumes. The team says it has been patient during this valuation cheapening, adding selectively at lower price levels, especially where risk-return sets show attractive volatility characteristics. The current stance expects continued strong new issuance and a resumption of debt management exercises after summer, which the team believes should create profitable special-situation opportunities.

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