INVESCO, the fund management group with assets of about US$65 billion earlier this year launched a fund to exploit the potential of the Asian convertible bond market. The Asian Convertible Bond Fund is aimed at private investors and European institutional fund management groups seeking exposure to debt markets in the region. Templeton and Jardine Fleming, also offer convertible funds but they generally invest in a broader geographical range. Templeton's Global Convertible Fund has 21 per cent exposure to Asia, 36 per cent North America and 15 per cent Europe, while JF's Global Convertibles Trust includes convertible bonds, convertible notes and warrant bonds. A convertible bond combines a bond and an option to convert to the equity of the bond issuer at a pre-determined date for shares on pre-arranged terms. INVESCO chief investment officer Stephen Leung said the interest rate rises since February last year caused a decline in bond prices. Asian share prices fell and price-earnings ratios throughout the region were near the bottom of their 10-year historical ranges. Mr Leung said the fund had raised about $8 million during launch. Investors in Asian convertible bonds should benefit from stronger stockmarket performance and growing demand for capital in regional markets, he said. Mr Leung said much of the demand for the fund was from European institutional investors. 'We expect more interest at the end of year. There is a general tendency for demand to be quiet until people see the performance of the fund.' Recent cuts in interest rates in the United States, the Philippines and Thailand would help to boost the bond element of the fund, he said. The fund, which can hold 20 per cent of its assets in Asian equities, will invest mainly in Asian Euro convertible bonds issued by Asian companies and traded outside their country of origin. It will exclude Japan and focus on Hong Kong, South Korea, Thailand and Taiwan. Bonds will have average maturities ranging from five to 10 years, and yields of about six per cent. The conversion premium, or the percentage above the underlying share price at which the bonds can be exchanged, will average 4.5 per cent. Minimum investment is $1,000 with monthly top-ups of $100. It has five per cent initial and one per cent annual charges, respectively. There are no redemption fees. The fund will have two classes of shares - distribution shares which will distribute income twice a year and accumulation shares which reinvest accrued income.