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Derivatives

French Manager Plans Convertible Arb Fund Launch

CDC Ixis Asset Management is considering launching a convertible arbitrage fund next year that will use over-the-counter derivatives and employ three times leverage. Dahlia Marteau, head of alternative fund management in Paris, said CDC is pondering the move to appeal to clients looking to take on leveraged exposure to the sector and is currently studying whether there is the demand.

Marteau said it is too early to talk about a potential size of the fund or its risk return profile. However, the asset manager currently has EUR650 million (USD580 million) in two separate convertible arbitrage funds of EUR450 million and EUR200 million and she estimated the size would likely be around these levels (DW, 4/9). The most leveraged of the existing funds is approximately 1.5 times and aims to return 2-3% more than the Euro Overnight Index Average, which was 3.35% last Tuesday.

The existing funds do not use a prime broker but the more-leveraged fund that is under consideration would likely use one. "We fear that if we use one prime broker we might be a prisoner of one provider, but it does make sense to have a prime broker for a more-leveraged fund," Marteau noted.

Although Marteau stressed the fund is only under consideration at this point, in a typical move it would buy a convertible bond and then short the underlying stock. The fund would also take out credit protection through the default swap market, although she added it will not systemically hedge credit risk.

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