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Opalesque Exclusive: Ferox is launching new global convertible bond arbitrage fund to play on current levels of theoretical cheapness Benedicte Gravrand, Opalesque Geneva: Ferox Capital Management, a London hedge fund manager founded by ex-JP Morgan trader Jeremy Herrmann, is launching a new convertible bond arbitrage fund that offers investors a play on the current theoretical cheapness of the convertible bond market. Jack Inglis, CEO at Ferox, talked to Opalesque.

Benefiting from current levels of theoretical cheapness As a result of the credit crisis the convertible market currently offers levels of theoretical cheapness that exceed those of mid 2005. This provides a substantial opportunity to achieve good returns from classic convertible bond arbitrage, extracting the difference between implied and realised volatility.

“According to Merrill Lynch data the average implied volatility for the global convertibles universe is now 14 volatility points below 90 day realized volatility for the same stocks,” Mr. Inglis said. “A year ago that was a 4 point premium. And according to Lehman data the Option Adjusted Credit spread (OAS) on convertibles is at widest levels relative to their Baa rated bond index since the 2002/3 credit crunch.”

The strategy of the new fund is to profit from this cheapness through delta-neutral, credit-hedged convertible arbitrage. There is no......................

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