Prudential M&G, the biggest fund manager in the U.K., in January plans to set up a convertible bond hedge fund that will likely use over-the-counter derivatives. The GBP500 million (USD710 million) fund will invest in European investment-grade convertible bonds, according to an official. Hedge fund officials said this would make it the largest convertible bond fund in the U.K. Asmita Kapadia, a spokeswoman in London, confirmed the plans, declining further comment.
The fund is expected to start trading Jan. 2 and will be opened up to investors after it has established a track record. One hedge fund pro speculated that Prudential M&G's derivatives strategy would vary depending on how aggressive it is but it would likely use foreign exchange derivatives to hedge the currency risk and may use credit, interest-rate and equity derivatives if it decided to arbitrage the bonds. Prudential M&G has approximately GBP145 billion under management.
