Tom Ku, head of quantitative strategies at Greenwich, Conn.-based investment management company Paloma Partners, with USD2 billion in assets, is planning to leave early next year to launch a convertible bond arbitrage fund. Ku, who is responsible for developing convertible arbitrage strategies for Paloma Partners, said his hedge fund will use interest-rate swaps and credit-default swaps.
Market officials said Ku, who is a highly regarded strategist in the fixed-income community, is seeking to raise an initial USD50-100 million as part of the launch and then attempt to build that up to about USD300 million. Industry players said he is likely to be able to raise the initial capital easily, but his first year results will determine the eventual size of the fund. Ku declined to comment on how much he would be looking to raise or if any of his colleagues at Paloma would be joining him at the fund. But headhunters said he is likely to nab one or two traders from Paloma to join the new venture. The asset manager has more than 22 different trading groups, focusing on alternative investment strategies including weather derivatives, risk arbitrage and utility arbitrage. There are about four traders in each of the trading groups.
Ku joins a growing list of fixed-income professionals who are planning to leave or have already departed from their firms to launch hedge funds, which concentrate on convertible arbitrage. Market professionals said hedge funds are increasing their focus on convertible arbitrage because it is an asset class that has performed extremely well over a long period of time. "It has become a means of achieving competitive portfolio returns with lower risk," one asset manager noted.
