T&T Capital Launching Volatility-Based Hedge Fund

Jun 2 2006 | 8:36pm ET

T&T Capital Management is gearing up to launch a hedge fund on July 1. The new offering, the Convexity Arbitrage Fund, will invest in volatility as an asset class, according to Carl Berg, business manager at the New York-based firm.

"Volatility arbitrage is the most highly sophisticated investment strategy out there," Berg said. "Very few players have the capacity to do that."

According to Berg, the new fund employs a non-directional volatility arbitrage strategy by using long/short combinations of options and underlying equities, with option maturities ranging from 1-18 months. The fund's investment universe consists of exchange traded options with underlings from the top 100 members of the S&P 500 index, ETFs and blue chip ADRs. In the future, European and Asian option markets may be added to the mix.

Berg said the fund, which has a large capacity and is fully transparent, will perform best in periods of low market volatility. The fund is targeting annual returns of 16-20%, with a volatility of 6-9% and a Sharpe ratio of more than 2.0.

"This is a very difficult strategy to communicate, but the market is beginning to appreciate its advantages," said Berg. He added that the fund is targeting fund-of-funds and other sophisticated institutional investors who are better prepared to understand the strategy than less sophisticated investors.

The fund is being managed by Teymuraz Eliazov, managing director, who founded T&T Capital in 2002. Prior to founding the firm, Eliazov was global head of equity derivatives at Rabobank International.

In addition to Berg and Eliazov, the management team is composed of two quantitative analysts and a technology manager. The minimum investment in the fund is $500,000 and fees are 2% for management and 20% for performance. 

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