The Cellyant Convergence Fund is a leveraged non-directional Security Financing Arbitrage Fund. Considering its exposure and sensitivity to market movements, the Cellyant Convergence Fund intends to offer investors the asymmetric risk / reward profile of a Dynamic Money Market Fund. The fund aims at delivering absolute performance through the implementation of market 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.
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.
Allocation and Dependencies
While the profitability of the fund’s core strategies is mostly dictated by access to cheap / stable borrows and financing, partnerships with counterparties secure appropriate sourcing and financing solutions. In parallel, this access allows the fund to implement ancillary securities, designed to optimise cash or holdings to the mutual benefit of itself and its counteraprties. 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.
Positions resulting of both core and ancillary strategies are aggregated and managed as a single book. This approach is the ultimate guarantee that:
- The Fund can act as market maker in a large variety of financial instruments,
- All optimisations are performed in a given situation,
- Partnerships with counterparties are handled in a way to secure their long-term profitability.