Coronation International has launched a new fixed-income hedge fund and will be adding a convertible arbitrage fund and a closed-end fund in the next four to six weeks. Stuart Davies, who heads arbitrage hedge fund business development in London, said the firm is in the process of converting its main business from that of proprietary trading to a family of hedge funds, using capital from the proprietary trading operation, allowing the firm to attract outside capital as well.
The fixed-income fund, which is called Trebuchet, was launched last week with seed funding of USD10 million and has a growth target of approximately USD50 million over the next 18 months. The fund, managed by Neal Sennett, will invest in South African securities and employ strategies such as yield curve structuring, structured transactions, and relative value plays using forward-rate agreements and interest-rate swaps and options. It will have up to 10-times leverage and target a return of 12-15%.
The convertible arbitrage fund will receive USD10-20 million in seed money from Coronation, with a target size of USD100-200 million. It will be leveraged four to five times and seek a return in the mid-teens. Alexandre Borione will be the portfolio manager and Bernhard Meister will be assisting him. Both previously worked on Coronation's prop trading desk. This fund will use credit-default swaps as well as asset swaps.
The closed-end fund will be similar in size to the convertible arb fund, but will not use derivatives. The firm is in the final stages of hiring a manager and will uses two times leverage with a mid-teen target return.
The prime broker for each of the new funds has not yet been chosen, but Coronation is speaking to all the major shops, he said. Currently, Coronation uses Goldman Sachs for its existing hedge funds. It will chose its prime broker based on credit rating, pricing and the preferences of the individual managers.
Coronation has third party funds of USD1.2 billion under management in the U.K. and an additional USD4 billion in South Africa. It has two existing arbitrage hedge funds, called Sabaton and Gatehouse, which are both event-driven and use contracts for differences. All of the company's funds are named after medieval terms.
