Jon Fiebach, who had launched Susquehanna International Group's proprietary fixed-income trading desks, last week left the Bala Cynwyd, Pa.-based firm to start a municipal bond hedge fund, joining the cadre of top traders to do so in recent years.
Partnering with Fiebach is Michelle Thomson, a former vice president in Credit Suisse First Boston's financial institutions group, who will handle the marketing of the private offering -- which is still in the preliminary planning stages.
There are only a handful of similar funds. The Blue River Advantaged Muni Fund, which may be the oldest among them, was launched just two years ago by Rob Bigelow, who formerly ran Bear, Stearns & Co.'s municipal derivatives group. Since then, two former traders from Cargill Financial Services Corp. have started their own fund, and so has Citigroup Alternative Investments and Pacific Investment Management Co. In mid-August, James Wise, who ran J.P. Morgan Securities Inc.'s proprietary trading desk, and municipal market strategist Christopher Dillon, left the firm to start the BTP Tax Advantaged Trading Fund, which they expect to launch early next year.
The funds -- which leverage, seek arbitrage opportunities, and hedge their positions by selling short Treasuries, swaps, and futures contracts in an attempt to neutralize their interest rate risk -- make accessible to individuals the same investment strategies that the major proprietary desks have long utilized. Their current popularity can be attributed to a growing demand for municipal bonds from sophisticated investors who, stung by losses in other markets, seek a high-quality asset class ripe with arbitrage opportunities that produces returns that are not correlated to other investments.
Like many of the traders who have left their high-profile jobs running major proprietary trading desks, Fiebach said the hedge fund represents an opportunity to own a stake in his own business. For some, the reasons for leaving have been personal as well. One of Bigelow's chief motivations to leave Bear Stearns in 1998 to begin work on the Blue River fund was to move back to his home town of Denver and spend more time with his family.
That private offering was slow to catch on with investors, according to Keith Pagan, a director at Bigelow Holland Park Management Co. who handles marketing.
"Two years ago when we launched the fund we told people we could earn them 9 1/2% tax-free, net of fees, year in, year out, and they said, 'That's wonderful, have a nice a day,'" Pagan said. "In today's market environment, they're saying, 'That's very interesting, tell me more.' "
The Blue River fund today has raised $100 million in assets, which when leveraged total more than $800 million. The firm was also hired by Citigroup to manage about half the assets in their municipal hedge fund, which was launched earlier this year. The Citigroup fund has raised about $200 million in assets before leveraging, according to one market source.
Another private fund launched in November 2001 by the Minnetonka, Minn.-based Alternative Strategy Advisors' Randy Jacobus and Rob Albright, who formerly ran Cargill's proprietary municipal trading desk, is quickly approaching $100 million in assets, according to market sources.
PIMCO, in Newport Beach, Calif., was not available for comment on the size of the PIMCO Municipal Edge fund.
