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Nascent Hedge Fund Eyes OTC Strategies

10 Nov 2003

New York-based hedge fund manager R.G. Niederhoffer Capital Management will enter currency forwards and over-the-counter equity derivatives in its newly launched Roy G. Niederhoffer Negative Correlation Fund. Roy Niederhoffer, founder and president in New York, said over-the-counter foreign exchange and equity markets are liquid and this is particularly important due to the short-term trading horizon of the fund.

The hedge fund utilizes a quantitative statistical model for directional trading that guides the fund manager on when to enter the trades, he noted. Niederhoffer expects the fund to grow to USD250 million in the coming months and it will then close to new investors. The firm manages a total of USD1.1 billion.

The negative correlation fund is a short-selling fund designed to profit more from a downturn in the equity markets, explained Niederhoffer. By also taking positions in assets such as foreign exchange, however, the fund further has the potential to make gains when the equity markets rally.

It will trade currency forwards on several currency pairs, said Niederhoffer, adding that foreign exchange will comprise a total of 20-25% of the fund's assets. Over-the-counter equity trades, including options and swaps on both individual stocks as well as baskets, will also be considered. It is too early to say what types of equity strategies the fund will adopt, he said.

Morgan Stanley and UBS are the fund's prime brokers, but R.G. Niederhoffer will shop around among more than five counterparties for best execution for derivatives trades.

10 Nov 2003