Zenith Asset Management, a private investment fund in Singapore investing throughout the Asia-Pacific region, is considering trading over-the-counter equity options for the first time as a tool for hedging as well as investing. Harold Woo, director in Singapore, said the fund manager got up and running two months ago and it will first use index futures and single stock futures with over-the-counter options being added after six months.
"We'll start small," said Woo, adding that notional sizes will likely range from USD5-10 million at first. The fund will use options for hedging its underlying stock positions as well as for leveraged trades. Zenith will likely buy calls to leverage positions as well as buy puts to hedge underlying positions to protect against short-term falls in the stock. He continued that he will use derivatives selectively and focus on liquidity: "Liquidity is our overriding concern," he noted. The fund currently concentrates on equity investments in Hong Kong and Singapore but will soon expand its focus to encompass other Asian markets including Malaysia, Korea and possibly India.
Zenith is in contact with a number of houses that could act as potential equity derivatives counterparties. "You can't listen to only one voice," Woo said. Possible counterparties include Merrill Lynch and Credit Suisse First Boston. Pricing is the most important factor. He declined comment on the size of the fund. Tom Grimmer, spokesman at CSFB in Hong Kong, did not return calls, and R.G. Rosso, spokesman at Merrill in Hong Kong, declined comment.
