CELLYANT CONVERGENCE FUND
The Cellyant Convergence Fund is a leveraged non-directional Security Financing Arbitrage Fund. The fund aims at delivering absolute performance through the implementation of delta / gamma neutral arbitrage strategies designed:
- To take advantage of unjustified price differences between convergent financial instruments; and
- To unveil and capture price discrepancies in the implied repo and financing rates across a wide diversity of derivatives products.
Consisting in going concurrently long and short in two different maturities on the same underlying asset, preferably by using listed derivatives.
New shares vs. Old shares
Consisting in simultaneously buying the new share (not entitled to dividend) and selling the old (ordinary share).
Consisting in acquiring the optional right to dividend and hedging it by selling ordinary shares.
Consisting in arbitraging the ordinary shares vs. the preferential rights.
While the profitability of core strategies is mostly dictated by access to cheap / stable borrows and financing, partnerships with counterparties secure appropriate financing / sourcing solutions.
Capital / limits are allocated between strategies depending on market conditions and expected profitability. Precedence is given to fully hedged transactions and trades unwinding a pre-existing position.
Financing / Sourcing
Consisting in organising access to cash and securities through listed or OTC derivatives, for the Fund own purposes or to the benefit of selected counterparties. May involve collateral upgrade strategies (e.g. borrowing debt securities to (re)finance Equity positions).
Facilitation / Transformation
Consisting in interposing the Fund book between two counterparties with a view to facilitating a transaction by potentially transforming it (e.g. borrowing stocks under a repo agreement and lend them via a buy / sell-back transaction).
Consisting in offering cash / securities optimisation strategies to selected counterparties with a view to refinancing their positions, investing cash or optimising the pay-off of certain corporate actions (e.g. scrips).
One single portfolio
Positions resulting of both streams are aggregated and managed as a single book. This approach is the ultimate guarantee that:
Security financing arbitrage is fuelled by the heterogeneity of financing curves implied in each derivative transaction. Spot and term transactions being asymmetrical by nature, the term structure existing in cash or fixed income instruments can also be unveiled in equivalent equity-based instruments. However, the market profile of equity-based repo / stock loans exhibits a specific risk / reward profile, fundamentally different from the one usually encountered in bonds or money markets: besides a typical interest rate / FX sensitivity, equity borrowing / lending costs are largely affected by the short interest, the occurrence of corporate actions (dividends, capital increase, etc.) as well as the credit and tax situations of counterparties.
Cellyant proprietary market analysis and execution routines are designed to take advantage of:
- The increased asymmetry of equity-related spot and term transactions,
- The particular financing structure of equity- based repo and securities lending markets,
- The fragmentation of the security financing market, as evidenced by the diversity of counterparties and structuring solutions.