LOM has launched its second Cahow Fund to follow-up on the success of its initial offering.

The Class B Fund will invest all assets in a diverse portfolio of bonds of between approximately 15 to 20 different issues, which will be managed in-house with security analysis from US investment brokerage houses.

The original Cahow Fund Class A shares, which were launched in May through its Special Purpose Segregated Portfolio Company, called the Cahow SPC, and focused on investors with an appetite for risk with investments in the distressed mortgage market, have proved to be a big hit, according to Jon Heckscher, vice-president and general manager of LOM Asset Management.

He expects the second offering to be just as successful with perceived value in the mortgage backed and asset-backed securities sector.

The sub-prime crisis sparked the current economic downturn, with many homeowners defaulting on their mortgages and individuals and companies being forced to write off billions in "toxic assets", but LOM Asset Management has seen the advantages of getting into a market which may rise significantly and offers the same risk as equity funds.

The second class of fund, which hit the markets a month later, will close this month with a maximum size of $3 million in investment with interest and principal repayment of the loans received being distributed quarterly to clients over the course of the underlying loans until they have completely paid off, at which point the fund will be wound up.

The initial investment period for the Class A Fund was closed at the end of May and the assets were fully invested before June 30, with the investments including commercial mortgage-backed securities, home equity asset-backed securities, whole loan and agency residential mortgage-backed securities and a return of more than seven percent since the beginning of July. The first principal and interest distributions will represent approximately 15 percent of initial investment and will be paid on October 15.

"As proven by Class A, it is our belief that investors have a distinct advantage by being able to buy assets before similar programmes become widespread," said Mr. Heckscher.

"The Cahow fund has an additional unique advantage of buying securities that the larger investors will not buy due to the smaller sizes and low net impact they have on larger portfolios and funds.

"Currently the only buyers of these small pieces are Wall Street insiders buying for personal accounts. By capping each class, the Cahow Fund can continue to buy these small lots. Target return will be 12 percent to 17 percent, per annum, net of fees."