Search results for

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 4%-4.5% volatility.

KBC Asset Management is buying call options and put spreads on a basket of financial stocks to structure a guaranteed fund. Lode Roose, product development manager in Brussels, said the fund gives investors 110% participation in the upside of a basket of 20 financial stocks with a 90% capital guarantee. The investor wins if the basket of stocks increases in value. Roose said the asset manager started buying the options at the beginning of April when it began marketing the fund and will continue adding to the position until May as more investors come forward. The asset manager has been buying options in typical notional sizes of EUR10-15 million (USD9-13.6 million).

Merrill Lynch and Banca Commerciale Italiana have structured a synthetic securitization based on a USD1 billion reference basket of airplane loans, in what is widely thought to be the first deal of its kind.

Axia Energy Europe plans to hire up to 15 energy derivatives professionals to expand its structured products desk in London. Uday Narang, managing director and head of trading for Europe, said it plans to hire five or six structurers and eight or nine quants for structured products across power, gas and weather derivatives. The department has approximately five pros at the moment and forms part of the trading division. The pros will be based in London and are expected to be on board by the summer.

Deutsche Bank andSchroder Salomon Smith Barney are recommending investors enter total-return equity swaps to take advantage of possible price changes following a rebalancing of the Morgan Stanley Capital International (MSCI) Europe index, details of which MSCI is expected to announce in June. The weightings will be changed in May 2002.

BNP Paribas has recently made two new hires for fixed income and credit derivatives in Asia and is looking to hire a synthetic securitization structurer. Emmanuel Dianflon, head of credit derivatives Asia, based in Hong Kong, says the French bank is seeing growing demand for derivatives products.

Commerzbank Capital Markets is ramping up its equity derivatives desk in New York to meet strong demand for U.S. equity derivatives products from hedge funds, corporates and high-net-worth individuals.

Stephane Petermann, head of the fx options desk at BNP Paribas in Singapore, will soon return to the firm's head office in Paris to take an equity derivatives position, according to Olivier Osty, head of equity options trading in Paris. Osty declined all further comment.

Enron is offering via its Internet trading platform a structured weather note that gives investors financial exposure to the weather in 19 U.S. cities. Mark Tawney, Enron's Houston-based head of weather derivatives who was in London last week, said the note mirrors the weather risk element of the Kelvin weather bond Koch Energy Trading issued in November 1999. Tawney believes that by guaranteeing to make a secondary market in the note, more pension funds, hedge funds and mutual funds will invest in weather derivatives. The note is most likely to be traded by bond holders, Axia (the product of a merger between Koch Energy Trading and Entergy Trading and Marketing) and speculative accounts. A weather derivatives official at Axia declined comment.

New Brunswick Investment Management Corp., with CAD6.2 billion ($4 billion) under management, is considering using equity derivatives to boost its foreign investments following the Canadian government's decision to raise the cap on foreign investments by 5% to 30%.

Credit protection tightened across the board last week after equity markets stabilized and new issuance dried up. Traders said hedge funds were sitting on credit default swaps expecting the spreads to widen as poor company results continued. But after the equity markets stopped falling investors sold the swaps. On average credit default swaps have tightened between four and five basis points over the last two weeks but autos and telecoms tightened approximately 20bps. The new issue pipeline has run dry over the last couple of weeks, according to Bradley Bugg, telecom credit analyst at Dresdner Kleinwort Wasserstein in London. He attributes this to companies coming to the market early to avoid paying premiums after investors were flooded with paper.