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Portfolio > ETFs > Broad Market

Arbitrage Opportunities in Indian Securities Fuel

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BOSTON (–Venus Capital Management started a new multi-strategy global arbitrage fund that focuses on equities and derivatives from Indian issuers. It also has an index arbitrage component.

Venus Arbitrage Fund LP uses several strategies with the goal of achieving market neutrality with no directional exposure. The objective is to get 12% to15% annual net returns with low volatility.

The investment team simultaneously buys and sells the same stock or derivative, exploiting differences in spot versus futures prices, American or global depository receipts versus local markets, and between various exchanges. The program includes arbitraging of equity and index options and derivatives in the United States and India.

Manager Vik Mehrotra has investment management experience in both countries, including a stint as adviser at PaineWebber. Natasha Koprivica, formerly from Fidelity, is assistant fund manager and Craig Aumann, previously a floor trader at the Chicago Mercantile Exchange for Rosenthal Collins Group, is head trader.

Inefficient Markets

The vehicle was launched about four months ago and has been trading with US$2.5 million in seed money from a few funds of funds and family offices.

Trades tend to close in a week or so. For example, the fund purchased domestic telecom carrier MTNL on NYSE while shorting the stock in India, returning 3.2% in seven days. It shorted the largest Indian software company, WIT, on NYSE, while purchasing in India, making 6.9% in 12 days.

“There are many so-called market neutral funds, which truly are not market neutral but make directional bets like long top 20 and short top 20 or do statistical arbitrage,” Mr. Mehrotra said. “We are completely market neutral on an absolute basis and our value at risk in directional trades is nil.”

He believes that markets are inefficient and the best opportunities for arbitrage may be at times of greatest volatility, when investors are more emotional. Mr. Mehrotra hedges all positions and tries to quantify the downside on each trade in dollar terms.

Venus Arbitrage has an Indian partner–Ashok Agarwal, a large stock brokerage operation in North India. Fidelity provides prime brokerage services in the United States.

Venus Capital Management is a Boston-based registered investment adviser with SEC that manages around US$50 million in assets from high-net-worth clients.

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