Alegra Capital, a collateralized debt obligation fund manager in Zurich, is looking for a derivatives house to write capital protection on a fund of CDO equity tranches. The fund, which launched in July, has around EUR25 million under management.
Daniel Riediker, partner and ceo of Alegra in Zurich, said it is talking to several market participants about using the constant proportion portfolio insurance method to provide capital protection. The illiquidity and volatility of the underlying, however, make this a difficult fund for a structuring house to hedge. Alegra has also looked into using a call option on the fund together with a zero coupon bond, but Riediker said it does not want to have the exposure to interest rate risk which it would have if it used a bond-based structure.