U.K. hedge fundRAB Capital plans to use credit derivatives for the first time when it launches a European long/short high-yield fund next month. Louis Gargour, co-investment manager in London, said the fund will be able to use total-return swaps and single-name credit default swaps as well as borrow bonds from its prime broker, Bear Stearns, to gain short exposure to the fixed income market. He estimated 5%-40% of the USD100 million fund's capacity will be invested in credit derivatives, depending on opportunities and the macro-economic environment. The fund manager is free to execute derivatives trades with all the major houses and will chose counterparties based on price, he continued.
The fund will invest in triple-B to single-B rated Western European bonds and aims to make money through relative value trades, speculating on price changes, distressed debt arbitrage and cash investments.
Gargour said it is launching a long/short fund now because the manager believes non-sector specific investment strategies will be popular since the telecommunications, media and technology bubble burst. The fund aims to return 15% a year with a volatility of 6%-9% and is aimed at sophisticated institutional investors, he noted. "This is not a Ma and Pop product," he added.
