HONG KONG May 3 Five former proprietary trading desk bankers at J.P. Morgan in Singapore have started a new firm, linking up with one of Canada's largest mutual funds to launch the business.
Dhimant Shah, 41, the former head of proprietary trading at J.P. Morgan Chase & Co in Singapore, told Reuters that the plan is to launch two funds investing in credit markets. The funds will also bet on foreign exchange, equity indices and interest rates.
U.S. regulators have effectively ended the traditional practice of banks trading their own money through prop desks, prompting hordes of traders to strike out on their own.
What makes the J.P. Morgan Singapore spin-out unique is the support it is getting from Canada's Mackenzie Investments, the $64 billion money manager.
Traditional Western asset managers such as Aberdeen Asset Management plc and BlackRock Inc, in their efforts to expand in Asia, have followed the standard path of launching mutual funds and other products familiar to them.
Mackenzie, by contrast, is hooking up with the prop team to plant the Canadian group's flag in Asia, a strategy that comes with heftier risks and rewards.
"We were looking for a strong and stable institutional backing," said Shah, who is leading the spin-out, which will remain based in Singapore and be named Mackenzie Investments Pte. Ltd. "And Mackenzie was looking to foray into the Asia credit space along with its strong macro capabilities so as to potentially build an absolute returns platform."
Mackenzie's funds will not be available to retail investors.
Shah did not disclose the initial investments in the funds but people with direct knowledge of the plan said Mackenzie's backing includes a $100 million start-up capital for a long only fixed income fund, and $20 million for a long/short hedge fund that will combine credit and macro strategies.
CREDIT AND MACRO
Macro hedge funds focus on major economic trends and events and place bets anywhere they see value, including stocks, bonds, currencies, commodities, and derivatives markets. Such funds collected a net $18 billion last year, according to data from Eurekahedge, the most by any hedge fund category in the world.
Credit and macro hedge funds in Asia such as Double Haven, Dymon Asia Macro and Fortress Asia Macro have raised hundreds of millions of dollars from investors in the last two years.
But with interest rates at record lows and yields falling, investors are wary of taking a directional view on credit at these levels and are layering it with other asset classes.
"As of now, no doubt, things are very tight overall in the credit markets," said Shah.
"That's why we have a mix of credit and macro strategies. This is how we will look to manage the downside more proactively as opposed to just running it as a pure long credit strategy."
Credit funds have benefited from a worldwide low-growth environment. The Eurekahedge Asia fixed income index rose 12 percent in 2012, outperforming a 10 percent rise in the regional long/short equity hedge funds and 4 percent gain in macro funds.
Shah is joined by former colleague Vasanth Arunagiri, who invested in the credit market at JPMorgan in Singapore, and Rahul Sinha, an Asian macro trader at the Wall Street bank. Carmine Di Conno and Alex Tesei, who traded global macro at the bank, are other team members.