Finnish hedge fund manager ER Capital is researching the use of equity variance swaps in its volatility fund for next year. Kaj Rönnlund, principal of ER Capital in Helsinki, said it is looking at adding the swaps to its USD20 million global volatility fund, which is net long foreign exchange, interest rates, equity and commodity volatility. Variance swaps are increasingly being used instead of options straddles as a way of getting exposure to volatility (DW, 5/2/04).
"We need to decide how we will use them in the portfolio," said Rönnlund, who explained the fund is researching the instruments to decide if they will add value beyond the futures and options strategies it already uses. He noted all the top-tier derivatives houses have pitched the trades in the last six months. Rönnlund declined to comment on which firm the fund might use as a counterparty if it decides to go ahead with the trade.
