By Jesus Segarra Sobral | 10:24:17 | 19 February 2010
Belgian firm Dexia Asset Management has set up an entry fee of 1% on new subscriptions to its highly successful Index Arbitrage fund in order to limit the size of the fund.
The fund has found favour among a number of leading fund selectors due to its low volatility, sound performance and its low correlation to other traditional asset classes.
It looks to arbitrage the inefficiencies caused by readjustments in equity indices. As indices are reshuffled, the strategy looks to exploit the heavy buying and selling by index funds of stocks which are entering or leaving the indices.
Ludovic Ferras, head of alternative and structured investments, told Citywire it was restricting new subscriptions as the fund is near its optimal size, given the size of the markets it covers:
‘It has nothing to do with safeguarding the product for existing clients but it is linked to the fact we trade hundreds of index rebalancing arbitrage opportunities per year, which currently limits our optimal size to €1.8 billion. Within this threshold of €1.8 billion of AUM, we are confident that Dexia Index Arbitrage can perform for our clients in line with its objectives.
‘We also capped the fund twice in the past as we understood that it reached its optimal size. The first occasion was in March 2005 when we closed at €250 million, to reopen nine months later, and then closed again with €550 million in August 2006 for the same reason. The fund will keep its liquidity conditions as usual: daily valuation and redemption orders executed on a daily basis. This means that clients’ assets are not frozen in the fund,’ says Ferras.
The Dexia Index Arbitrage fund has been managed since inception by Emmanuel Terraz. The fund is a Ucits III compliant vehicle and offers daily liquidity. The fund seeks to arbitrage the inefficiencies generated by readjustments by 20 indices from Western Europe, US, Japan and Australia.
It is a market neutral strategy which as each position is systematically hedged via futures, ETFs or a basket of equities. The reason the fund is mainly independent of the market environment is that Terraz looks to just analyse the impact on a given stock of its index readjustment.
It has posted 22.4% since inception in September 2003 to end of January 2010 while the EONIA (Euro OverNight Index Average) posted 14.2% during the same period.

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