Fixed-income fund powerhouse III Offshore Advisors is planning to launch a credit derivatives arbitrage fund next month. The firm is seeking to launch with USD300 million with its principals kicking in USD15-20 million, according to an investor document. III has invested in credit derivatives in its other funds, but has approached capital allocation limits. The III Relative Value Credit Strategies Fund is being kicked off to allow it to invest further and to pursue opportunities in credit outside its current mandate, the document says. Calls to Bill McCauley, principal, were not returned by press time.
III began investing in credit derivatives toward the end of last year, and the strategy now represents 15% of the III Relative Value/Macro Fund. Around that time it hired John Cieslowski from Bank One and Lester Croyle from Commerzbank to run the strategy. The new fund will execute various arbitrage plays, including arbing bonds versus credit default swaps, index versus index and correlation trading. The vast majority of trades will be in the U.S., European and Japanese credit markets. III plans to invest in the higher end of the capital structure and may also engage in strategies that have longer work-out periods.
