Zurich-based Hedge Fund Capital Management is launching a credit opportunities fund of hedge funds to take advantage of the major dislocations that have taken place in credit markets in recent months.
'Significantly reduced liquidity and the effects of deleveraging in the financial markets have led to dramatic declines in asset prices,' says portfolio manager Iain Hamilton. 'Corporate, mortgage-backed and asset-backed securities are priced at historically low levels, in many cases discounting default rates rising to and remaining at levels significantly above anything seen in the past 50 years.
'Managers who have been able to avoid liquidating positions are now holding heavily marked-down assets that have the potential to deliver attractive performance through the significant coupon and loss-adjusted yields - carry - and capital appreciation - pull to par - available at the moment on these frozen illiquid investments.
'We see an immediate opportunity, similar to that exploited by investors in the aftermath of the savings and loan crisis of the early 1990s and following the corporate defaults of the early 2000s.'
The fund will focus initially on corporate debt markets, predominantly first-lien loan and credit long/short managers impacted by the financial sector freeze on lending and global liquidity crisis, and securitised debt markets, predominantly MBS and ABS managers that have suffered due to the sub-prime mortgage collapse and global liquidity crisis.
The fund will target a 15 per cent annualised net return with acceptable volatility over a two-year time period through the construction and management of a diversified portfolio of funds.
Hedge Fund Capital Management is an independent investment manager that currently advises a range of diversified fund of hedge funds portfolios for institutional and sophisticated private investors and is developing new products to take advantage of market opportunities.