Pioneer Alternative Investment Management plans to launch a convertible arbitrage fund that will use over-the-counter derivatives. Peter Cripwell, cio in Dublin, said the fund will use credit swaps, interest-rate and equity derivatives to isolate the embedded options in convertible bonds. Cripwell declined to give an example of a typical strategy but added, "I have no problem with the manager taking significant positions using derivatives." The fund will execute its derivatives transactions with Deutsche Bank, its prime broker.
Pioneer will launch the hedge fund in October with EUR20 million (USD17.5 million) of seed capital and will target investors once the vehicle is up and running. Cripwell predicts it will cap the fund at EUR200 million. The convertible arbitrage fund aims to return 15% per year after fees with an annual volatility of around 8%.
Cripwell said it is launching the fund now as part of its effort to create a range of alternative investment products. Pioneer Alternative Investment Management already runs a fixed income relative value fund, a global macro fund and an equity arbitrage fund. The manager will offer the fund to high-net-worth individuals and institutions as a stand-alone product or as part of a portfolio of hedge funds with its other products.