By Amy Or
NEW YORK--Hutchin Hill Capital, a New York-based hedge fund that manages $1.2 billion, has launched a new fund that concentrates on long/short credit trading, a successful strategy for the firm as demonstrated by its betting against J.P. Morgan Chase & Co.'s (JPM) "London Whale" with credit default swap trades.
The new fund, called Hutchin Hill Liquid Credit Strategy and launched this month, is a "carve-out" from its main fund, Hutchin Hill Capital Master Fund, a person familiar with the matter said Wednesday.
The new fund has already secured $100 million in anchor investment from an unidentified U.K. pension system, and is only expected to raise a "limited amount of capital" in the next few months, the person said.
Hedge fund managers often scale their fund's size in relation to the level of market opportunities and a firm's capabilities. Some funds also choose to remain relatively small, or gather "limited" amounts, to be nimble in trading.
Hutchin Hill's liquid credit strategy posted a 0.10% gain last month and a 2.52% increase through June 29, according to an investor letter on fund performance sent earlier this month. Hutchin Hill declined to elaborate on the performance stated in the letter
Despite the new credit-oriented single-strategy fund, the firm founded by former SAC managing director Neil Chriss will maintain credit-market exposure in its main fund. The other six strategies in the main fund are: long/short equities, event-driven, quant, macro, managed futures and opportunistic investments.
According to another investor letter, dated July 4, reviewing the main fund's performance, the fund believes the current environment possesses credit-related opportunities that are more attractive than equities, including some opportunities related to J.P. Morgan unwinding its positions.
The ongoing European sovereign debt crisis also provided much fodder for potentially profitable trading.
"Given the continued uncertainty around the Spanish banking sector bailout and (Italian Prime Minister Mario) Monti's government in Italy, we are looking to take advantage of panicked short covering into the summit (of European leaders last month) by selectively entering new shorts," it said.
While the fund is prepared for further market correction, it is also mindful of possible sudden yet sharp rallies in the credit market.
"The weak European banking sector has dampened both the emerging markets and U.S. economy. We believe it is important to take into account various easings and liquidity injections that are underway throughout the world that could trigger rallies in a worsening data environment," it said.
Write to Amy Or at firstname.lastname@example.org