Julius Baer is set to launch its fourth single manager hedge fund, the JB Convertible and High Yield Hedge Fund, on 1 July 2005.
The fund will focus on convertibles and corporate bonds rated BB or below, and hedged with credit protection, outright shorts, equity and interest rate positions. The fund is aiming at LIBOR + 10 per cent per annum with expected volatility of 7 per cent per annum and a VaR limit of 9 per cent on a monthly basis, with a 97.5 per cent confidence level.
Equity VaR is a maximum of 4.5 per cent on a monthly basis, while the anticipated gearing is 4x fund equity on both the long and short sides (on a US 10 year Treasury equivalent basis).
Existing JB high yield specialists, Greg Hopper, Mary Gottshall and Johannes Wagner will run the convertibles along with Henry Hale, who has joined the firm from JP Morgan.
The fund is a 'carve-out' of existing convertible and high yield strategies, which are currently being run within the Julius Baer Diversified Fixed Income Hedge Fund and will give investors direct access to these sectors. The fund is expected to launch with approximately USD 120 million.
"Traditional convertible arbitrage has struggled as volatility has declined, but we have generated consistent value by trading global convertibles mainly against credit default swaps (CDS), under, closely or over-hedging the credit portion on a discretionary basis, leaving some equity market exposure," said Tim Haywood, CIO at Julius Baer Investments Ltd. "We have got to a stage in the market which is quite appealing and implied volatilities, as a measure of value of convertibles, are now at levels that we have not seen for a few years.
"We are looking to expand our exposure to this sector above the convertible v credit default swap strategies with the enlarged convertible team. Furthermore, two of the high yield team of four are now sitting with us in London. This proximity allows us to build on a blend of related asset classes that we have run together for a long-only client with pleasing results.
"We will continue to view these sectors from the established Julius Baer bond perspective," said Haywood.
Estimated initial capacity of the strategy will be approximately USD 500 million, the fund will be listed in Dublin, domiciled in Cayman and the prime broker will be Citigroup. The administrator will be International Fund Services (Ireland) Ltd, while the management fees are 1.75 per cent with a performance fee of 20 per cent of new profits above accreted LIBOR rate. (i.e. 3 month LIBOR extrapolated over a 12 month period, reset each calendar year end).
Currency classes will be US Dollars, Euros, Sterling, Swiss Franc and Yen and there are no lock-ups or redemption penalties. The fund has monthly liquidity, although there is a 90-day notice period on investor share classes.