25 June 2026 10 minute read
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Corporate hybrid bonds are a rapidly growing asset class. In this paper we explore the structure, benefits, risks and key dynamics of the corporate hybrid universe. 

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The case for corporate hybrids

In an era of evolving monetary policy, demographic shifts, and increasing demand for income-generating assets, corporate hybrids – a fast-growing and distinctive asset class – have emerged as a compelling solution for investors seeking enhanced yield without materially increasing credit risk.

Corporate hybrid bonds combine features of both debt and equity and are issued by non-financial companies that are predominantly investment grade. The bonds are subordinated, long-dated (or even perpetual) and callable – typically after five to ten years by the issuer.

The benefits for issuers are significant. The 50:50 debt and equity treatment by credit rating agencies can help lower the weighted average cost of capital, support credit ratings, provide flexible funding for capital expenditure (capex) or merger and acquisition activity and enhance capital efficiency through tax-deductible coupons.

Historically, issuance was concentrated in Europe, particularly within the utilities and telecom sectors, while US issuers were unable to fully access these benefits. However, following the standardisation of rating agency methodologies in 2024, the market has evolved rapidly. Today corporate hybrids have transitioned from a European niche into a global institutional staple, supported by increasing issuance from the US and Asia. The market has also grown more diversified across issuers and sectors such as energy, automotives and consumer industries.

The benefits for investors are equally compelling. Corporate hybrids offer attractive yield enhancement from high quality, investment grade issuers alongside diversification benefits, and exposure to structural capex-driven investment themes at the forefront of today’s markets.

Like all other asset classes, hybrids come with their own risks and benefits. In this paper we explore the asset class to explain:

  • what are corporate hybrids
  • the key dynamics of the corporate hybrid universe, and
  • the risks and benefits to both issuers and investors.

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Key risks

For further information on the risks and risk profiles of our funds, please refer to the relevant KIID and Prospectus.

Investment/objective risk: The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested.

Convertible securities risk: Convertible bonds can earn less income than comparable debt securities. They can also earn less growth than comparable equity securities, and carry a high level of risk.

Counterparty risk: The Strategy could lose money if an entity with which it does business becomes unwilling or is unable to meet its obligations to the Strategy.

Credit and interest rate risk: Bond values are affected by changes in interest rates and the bond issuer's creditworthiness. Bonds that offer the potential for a higher income typically have a greater risk of default.

Currency risk: The strategy is exposed to different currencies. Derivatives are used to minimise, but may not always eliminate, the impact of movements in currency exchange rates.

Derivatives risk: Investments can be made in derivatives, which can be complex and highly volatile. Derivatives may not perform as expected, meaning significant losses may be incurred. Derivatives can have some degree of unpredictability (especially in unusual market conditions), and can create losses significantly greater than the cost of the derivative itself.

Emerging market risk: Investments can be made in emerging markets. These markets may be volatile and carry higher risk than developed markets.

Interest rate risk: When interest rates rise, bond values generally fall. This risk is generally greater for longer-term bonds and for bonds with higher credit quality.

Leverage markets risk: A small price decline on a "leveraged" underlying investment will create a correspondingly larger loss for the Strategy. A high overall level of leverage and/or unusual market conditions could create significant losses for the Strategy.

Real estate/Infrastructure/risks: Investments can be made in real estate, infrastructure and illiquid assets. Investors may not be able to switch or cash in an investment when they want because real estate may not always be readily saleable. If this is the case we may defer a request to switch or cash in shares or units.

Market risk: Prices of many securities (including bonds, equities and derivatives) change continuously, and can at times fall rapidly and unpredictably.

Sustainable investing risk: The level of sustainability risk to which the Strategy is exposed, and therefore the value of its investments, may fluctuate depending on the investment opportunities identified by the Investment Manager.

Operational risk: Human error or process/system failures, internally or at our service providers, could create losses for the Strategy.

Global hybrid bond team

  • Justine Vroman

    Senior Portfolio Manager

  • Thomas Chinery

    Senior Portfolio Manager

  • Nayeem Islam

    Portfolio Manager

  • Mark Dove

    Credit Portfolio Manager

  • Matt Roberts

    Senior Investment Specialist

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