Kottke to set up agricultural arbitrage hedge fund

Chicago-based managed futures fund Kottke Associates is to launch its first hedge fund based on an agricultural arbitrage strategy in September. The firm, which established its managed futures business in 1994, is seeking to expand its client base by opening the hedge fund aimed at institutions and high-net-worth individuals.

“The agricultural arbitrage strategy is popular with investors as it is uncorrelated with traditional equity and bond markets and is useful for portfolio diversification,” said Ron Seliga, shareholder at Kottke Associates.

An agricultural arbitrage strategy typically aims to take advantage of mispricings between agricultural contracts of differing maturities. It also aims to capitalise on the spread between interrelated commodities, such as soya bean and soya bean derivatives such as meal and oil.

The fund, which initially hopes to raise $20 million, is aiming for returns of between 15% and 20% while keeping minimal downside volatility, said Seliga. Kottke Associates currently has six programmes based on its commodity futures trading strategy, with around $80 million under management.

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