GAM has established the GAM multi-arbitrage fund, a multi-manager fund of hedge funds that aims to provide capital growth.
The GAM multi-arbitrage fund invests in a portfolio of 12 to 15 hedge funds that use a variety of arbitrage strategies. Arbitrage strategies were chosen because GAM believes the outlook is good, in the short term and the long term.
Strategies used include statistical arbitrage and merger arbitrage. Statistical arbitrage aims to exploit differences in the price between stocks through long and short selling, based on a range of factors that are fed into a computer system created by the fund manager.
Merger arbitrage is an event-driven strategy that exploits price differences between stocks before and after mergers and acquisitions. The risk that the merger or acquisition will break down is an important factor that the hedge fund manager considers.
The GAM fund is managed by Dorothy DeWitt and David Smith. DeWitt joined GAM earlier this year. She was previously managing Madaket Partners LLP, a hedge fund focusing on American and European equity arbitrage strategies. David Smith. Smith is chief investment director of GAM's 37-strong multi-manager team, which currently manages over $7bn.
Arbitrage strategies may perform well during most market conditions and as this fund blends different types of arbitrage, investors are not punning their hopes on one narrow strategy. However, the CSFB/Tremont hedge fund index shows that fixed income arbitrage strategies have performed better than convertible arbitrage strategies during 2002. If market conditions changed, the fund managers would need to ensure that any changes they make to the hedge fund portfolio would not upset the overall balance of the fund.