Axis Capital Management
plans to launch by the end of the month a European
convertible arbitrage fund that will use derivatives.
George Philips, chief
investment officer in London, said the fund will buy investment
grade convertible bonds and use derivatives to strip out the
interest-rate, equity and credit risk. It then hopes to profit from
the implied volatility on the convertible rising. Philips said the
notional size of the transactions would typically be between
USD5-50 million. He expects the fund to return 17.5% profit with
It is launching the fund now because it expects
convertible bond issuance in Europe to increase over the next year,
partly because of German companies issuing convertible bonds to
unwind cross holdings, according to Philips. He added these
convertible bonds will be especially interesting because they
likely will be convertible into two or more stocks, depending on
how many companies are involved in unwinding the cross holdings.
The fund aims to raise USD100 million and is only available to
institutional investors. All the derivatives trades will be
Bank, its prime broker. Axis hopes to
in the coming weeks.
The fund will be called the Northwest European
convertible arbitrage fund because it aims to shift investors' risk
return profile towards the 'northwest,' referring to the low end of
the risk x-axis and the high end of the return y-axis.
Axis Capital Management has a total of USD150
million under management split between a global convertible
arbitrage fund, a Japanese convertible arbitrage fund and a
European managed account.