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Derivatives

Offshore Firm Eyes Hedge Funds

Cayman Islands-based fund manager Absolute Plus.com plans to launch several hedge funds, which will use derivatives. Manfred Kastner, managing director in Vienna, said it will launch a euro-denominated absolute return fund next month, a long/short European equities fund in the first half of next year and is also considering a convertible arbitrage fund in the second half of next year. He expects all the funds to raise EUR50 million (USD46.5 million) within the first 12 months and EUR100 million after two years.

The absolute return fund will use listed futures and options to invest in U.S. large-cap stocks, but the others will also be able to use over-the-counter derivatives. He added the European long/short fund will be able to purchase and sell OTC options for investment and risk management, but Kastner thinks it is likely to make more use of futures because they are less expensive.

The fund manager is still undecided whether it will launch a convertible arbitrage fund next year. Kastner said it will depend on market conditions for hedge funds and convertible bonds as well as the availability of experienced convertible arbitrage managers. If the fund is set up it will use credit, interest-rate and equity derivatives to isolate the equity options embedded in convertible bonds.

Kastner is launching the funds as UCITS (undertakings for collective investment in transferable securities) to meet demand from institutional investors for more liquid hedge funds. The funds will have daily liquidity, meaning investors can take their money out whenever they want. It is more usual for investors to be limited to monthly or quarterly liquidity. Kastner is launching the funds now because the popularity of hedge funds is spreading from the sophisticated investor base, which was able to invest in offshore funds, to more regulated institutions that require onshore products. The funds are aimed at fund of funds managers, large investment houses and insurance funds.

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