Tokai equity trading team quits to set up hedge fund

Page, who set up the equity trading division at Tokai three years ago, has lured his entire former team – Mark Baker, Mike Weber and Tim Bassett – to the new equity hedge fund. Eriswell is expected to start trading by October 2002, subject to regulatory approval.

The fund will aim to generate absolute returns via a number of distinct market neutral equity investment strategies. At Tokai, Page’s team used various strategies including risk arbitrage, volatility trading and convertible bond arbitrage.

A typical play is to use options to exploit different volatility term structures observed on markets that are structurally similar, Page said. Such disparities in volatility can naturally arise when there is an oversupply of calls or puts in a particular market.

“Our philosophy of dynamically allocating risk between different investment strategies will provide a stable foundation for the new fund,” Page claimed.

Eriswell will primarily invest in Europe, with smaller allocations in the US and Asia. Targeted annual returns will be between 15% and 25% and it aims to have a low correlation to the performance of the global equity markets as a whole. While at Tokai, Page’s team traded the bank’s proprietary capital and achieved average returns in excess of 35% over the past three years, according to Tokai. “The target size of Eriswell is between $300 million and $350 million,” Page said.

Prior to joining Tokai in 1994, Page was head of European equity derivatives trading at Citibank.

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