Axa launches credit-equity volatility arbitrage fund

Axa Investment Managers has launched the second generation of its credit-equity volatility arbitrage fund, called Axa Kappa.

The fund attempts to exploit arbitrage opportunities from the volatility levels derived from the debt and equity of the same company. It does this by using credit default swaps (CDS) to capture 'attractive' volatility levels on the long and the short side.

The new fund is called Axa Kappa Opportunities. It is designed to implement both long and short CDS positions, to take advantage of opportunities on both sides of the trade.

“As such, the new fund will be more opportunistic and benefit from both rises and falls in the volatility market,” said Axa. The fund aims to make 15-20% returns, with volatility below 10%.

“The evolution of the credit derivatives market, in terms of size and liquidity, has made this innovative strategy possible,” said Guillaume Boulanger, fund manager of Axa Kappa Opportunities. "We firmly believe this growth and evolution will allow these types of strategies to mature and develop, especially as investors realise they can exploit the link between credit, equity and the underlying volatility.”

He continued: “With Axa Kappa, we offered a very innovative strategy, providing attractive credit protection. With Axa Kappa Opportunities, we can now offer a more trading-oriented and opportunistic strategy by implementing the two sides of the trade.”