Edgeworth Capital, a recently formed London-based investment management firm owned by Lehman Brothers, plans to use derivatives in its first two hedge funds. The global opportunity hedge fund will primarily invest in equities but will also take currency bets using foreign exchange options, said Wesley Paul, who is heading up the new firm. The fund will also own some fixed income securities to diversify its asset base, but will not be using credit-default swaps as the fund will not take on major credit risk, he explained.
The second fund will be a pan-European long-short hedge fund with a directional overlay. Both funds will use equity index options and stock options. The firm is limiting leverage on the first two funds to three-times, and will target returns of 10-15%. "Over the long-term, for people to justify owning hedge funds, you need to [target] over 10%," Paul said. He added that in a three- to five-year period the firm would aim for closer to 15% levels. Within the next few years Edgeworth Capital hopes to grow the funds to over USD1 billion, Paul added.
The firm plans to launch the first two funds in September and two more hedge funds in 2003, but Paul would not provide any further details. Paul was previously global head of investments at JPMorgan Asset Management.
