Hedge Fund Manager Sees Reducing Volatility In Markets

by Carla Johnson, Investors Offshore, London

19 August 2002

Vega Asset Management which manages hedge fund assets of about $500 million through its flagship Vega Global Fund and its Vega Select Opportunities fund says it is generally optimistic but does not plan to change Vega strategies to be more aggressive or to assume positive bias - but the fund says it's on alert to revert to optimal risk management parameters that it diverged from earlier this year.

The firm says that as an added protection against extremely high volatility in May it altered our trading strategy to achieve higher downside protection at the expense of some upside. This resulted in extremely low fund's volatility - less than 3% annualized this year, but also cut profit potential to about 10% gross annually. Vega says it will be changing the model to a more profitable variant as soon as it determines that the underlying market volatility has sufficiently subsided.

The above-mentioned line of thinking, says Vega, is becoming increasingly important in a view that was independently suggested by several of its prospective clients: they viewed investment into the Vega Fund as a bond substitute. With a typical bond fund currently yielding anywhere from 5 to 8% depending on its risk profile, that is understandable, says Vega.

Vega expects this year to be different as subsiding fear drives market volatility down and the economy recovers. As large moves in the market that can be easily exploited by the model are unlikely, attention to detail will become the cornerstone of fund’s profitability.

'So,' says the firm, 'we are planning to pay even more attention to the selection of industrial groups and individual securities in our portfolio. An uneven economic recovery will generate ample opportunities with some sectors significantly outperforming and others lagging. We will be on the lookout to capture as many of these as our investment philosophy will allow for the benefit of our investors.'

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