A London-based hedge fund firm running a volatility arbitrage fund has passed the USD500 million mark, in spite of it being a less well-known strategy. David Beddington, coo of Shooter Fund Management, said it is aiming to reach USD800 million by year-end, having hit USD530 since launch at the end of 2004.
The fund trades both over-the-counter and listed options on interest rates, equity and fx, and usually short-dated instruments. A sizeable portion of the portfolio turns over every two months, said Beddington. At the moment, it runs separate books for each asset class, but last year it looked into trading across the three. "We are debating the idea," he noted, adding Shooter will run another research project looking into it this year, to see if it is profitable on a risk-allocation basis. "We are fairly lukewarm about it."
The fund has also considered trading more structured instruments such as variance swaps, but so far has not taken the plunge. "We need liquidity and we like transparent markets and tight prices," said Beddington, who explained the fund's relatively high turnover means slippage is a concern.
