Thursday, 23 October 2014
Last updated 7 min ago
Jan 29 2013 | 12:11pm ET
Switzerland's Diapason Commodities Management is readying a relative-value oil hedge fund employing a proprietary refinery model.
The Diapason Relative Value Petroleum Industry Fund will begin trading with about US$10 million in initial capital at the beginning of next month. The fund's model seeks to profit from futures spreads.
"Some relationships determine the price differential between input and output," Edouard Mouton, Diapason's head of quantitative research, said. "That was our starting point. We then decided to focus on the rationale behind how the refinery is managed." The "barrel-neutral" strategy is designed to be uncorrelated to crude prices.
The fund focuses on refining in the U.S. Gulf Coast, northwest Europe and Singapore, seeking arbitrage opportunities between crude oil and refined products. Initially, it will trade only six liquid futures contracts with 15 spreads currently eligible.
"We decided to constrain the fund, trading only the most liquid futures," Mouton told Hedge Funds Review. Diapason will also institute strong risk controls, including stop-losses for each spread pair, a 7.5% risk budget and maximum long exposure of 1.5-times assets.
Diapason has run the strategy internally for four-and-a-half years, and live on paper since last January. It has enjoyed annualized cumulative returns of 16.3% over that period.
Mouton said he hopes to raise US$50 million for the fund by the end of the year, with a capacity of between US$600 million and US$800 million. Diapason plans to focus its marketing on existing institutional clients in Europe and the U.S.
Relative Value Petroleum will be available in four currency share classes, U.S. dollar, euro, Swiss franc and pound sterling. It will charge 1.5% for management and 15% for performance above a hurdle, and have a US$125,000 minimum investment requirement.
The fund could be the first in a series for Diapason: Mouton said its model could be used for any business, and mentioned electricity as a possibility.
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