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Linda Patterson, portfolio manager of Austin, Texas-based Patterson & Associates, says her firm will place $250 million in new cash she expects to receive into short-term agency debentures in anticipation of a Federal Reserve rate cut in two weeks. Patterson says the firm's clients are government entities that are now collecting their tax money, which is why she expects the cash infusion. She reasons that she will place the cash into agency debentures instead of Treasuries--the only two asset classes in which the firm invests--because she believes Treasuries are overvalued versus agencies. She notes that agencies are currently yielding 23 basis points more than Treasuries on two-year and shorter maturities.

Dresdner Kleinwort Wasserstein has added a layer of management in its credit derivatives group with the addition of Rick Weinstein as global head of credit derivatives. Weinstein said he moved internally and reports to Matteo Mazzocchi, who is also head of securitization and project finance. The credit derivatives group previously reported directly to Mazzocchi.

Lehman Brothers has bought more than USD3 billion (notional) of one-month yen puts/U.S. dollar calls struck at JPY133 in the last three trading days, according to fx options traders on the other side of the positions. One-month volatility surged more than 1.5% during the three-day span. Traders at Lehman declined to comment.

Dresdner Kleinwort Wasserstein is looking to revive its credit derivatives trading desk in Tokyo next month with the hire of Mike Gordon, manager of Enron Credit in Tokyo, according to officials familiar with the situation. Gordon, who was let go last month after Enron collapsed, is expected to sign on with DrKW in the coming weeks. A DrKW official declined comment on Gordon, but said, "we're evaluating additional hires for the credit desk in Tokyo," noting that the firm will likely hire an additional structurer and trader within six months. Gordon could not be reached for comment.

Andrew Barnard, head of U.S. convertible arbitrage trading at Goldman Sachs in New York, has left his position to join hedge fund JD Capital Management, in Greenwich, Conn., according to the fund's founder David Rogers. Barnard, who worked under Rogers during part of his nine-year stint at Goldman, started at the hedge fund two weeks ago and will be working to develop its convertible arbitrage group. Barnard will have direct oversight of the group. Rogers, a former Goldman Sachs equity derivatives head, started putting together the hedge fund in June and has scheduled for a February launch. He is hoping to raise USD350-400 million for the multi-strategy fund, which will incorporate relative value and arbitrage strategies (DW, 11/19/01).

Credit and interest-rate derivatives had a bumper year as investment and commercial banks couldn't get synthetic collateralized debt obligations out of the door quick enough and end users flooded back to the market to hedge interest-rate exposure on the back of eleven Federal Reserve rate cuts. In Europe, pension funds also joined the rush to hedge with interest-rate derivatives, driving up demand.

UnionBanCal, the San Francisco-based holding company for Union Bank of California, is considering entering an interest-rate swap to convert a fixed-interest rate USD200 million bond offering it brought to the market last month into a synthetic floating-rate liability, according to K. Hamahashi, treasurer. He added that the swap would likely be a plain-vanilla deal with a five-year maturity to match the bond offering. "We look at the swap market on a continuing basis. This is something we've been considering as part of the entire bond offering process," Hamahashi said.

Whether it was making a first foray into weather derivatives, launching a hedge fund, issuing catastrophe bonds, or setting up a fund-of-funds the alternative investment sector skyrocketed in 2001. With the equity market in the gutter firms and wealthy individual investors began exploring other avenues for capturing high returns. "Investors are coming up against a challenging market that's having a massive impact on their portfolio construction. We've seen a sustained period of shrinking equity premiums that's had a real impact on traditional asset allocation. We realize that high-quality alternative investments can improve portfolio returns, while at the same time reduce overall volatility," said Bill Santos, managing director of Montgomery Asset Management, a San Francisco-based investment firm with more than USD7 billion in assets.

Investment banks entering the weather derivatives market gave the nascent industry a seal of approval just before Enron, one of its pioneers, filed for bankruptcy. Among the firms to enter were Barclays Capital (DW, 1/15), Dresdner Kleinwort Wasserstein (DW, 5/7), Credit Suisse First Boston, Deutsche Bank (DW, 5/20) and Italy's IntesaBci (DW, 7/16).