William Lee, who led JPMorgan Chase & Co. (JPM)’s Asia-Pacific equity derivatives business, plans to start his own hedge fund this year that will exploit mispricing in the region’s derivative markets and broad economic trends.
Lee, 40, plans to start trading for the relative-value hedge fund as early as November, he said in a telephone interview. The fund will seek to profit from securities whose prices may have deviated from their fundamental values because of regulatory restrictions and the different trading behaviors of institutional versus individual investors.
Lee is trying to capture investor demand for hedge funds whose returns are not directly linked to the direction of stock and bond markets. Relative-value drew $12.4 billion of new capital from investors in the first quarter, almost 78 percent of net inflows into the global hedge fund industry, according to Chicago-based data provider Hedge Fund Research Inc.
“A lot of retail investors who buy structured products only care about whether the markets go up or go down,” ignoring other factors such as volatility and dividends that affect option pricing, said Lee. “It creates a value for us to get in.”
The fund will seek a 12 percent to 18 percent annual return by focusing on Asia-Pacific markets including Greater China, Australia, Japan, Korea, India, Singapore and Malaysia, Lee said. It will trade equity, foreign exchange and fixed-income securities and their derivatives, and will use U.S. instruments to hedge against risk. About 30 percent of the fund’s investments will bet on broad regional economic trends, he said.
Chasing Bigger Trends
“Local markets are quite a lot of times policy-driven,” Lee said. “You have much bigger trends, longer time frame than other markets.”
A fund employing such a strategy may manage at least $2 billion of assets, he said, declining to give fundraising targets for his fund.
A Hong Kong native, Lee spent his entire 17-year career so far at JPMorgan, joining the New York-based bank as a foreign exchange option trader in Singapore in 1995.
He returned to Hong Kong in 2000 to help set up the bank’s equity-derivatives team in Asia outside of Japan, starting with four people. He headed its equity derivative business in Asia- Pacific in the last three years until his departure in late February. JPMorgan’s equity derivative market-making and trading business in the region employed 130 people, he said.
Lee is talking to several people, including former JPMorgan colleagues, about joining his company and will start it with at least five people, he said, declining to identify them because of the discussions are still continuing.
Lee earned bachelor’s and master’s degrees in computer science from the Massachusetts Institute of Technology and also has a law degree.
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