Jim Wise and Chris Dillon, formerly of JPMorgan’s Proprietary Municipal Desk, have launched BTP Capital, a hedge fund that focuses on relative value and arbitrage trades in the tax-exempt markets.
BTP Capital’s relative value municipal fund is set to launch December 1st 2002 with an expected $50 million in assets.
The firm is actively marketing to prospective investors, and has retained Blue Sand Capital, LLC to assist them on the marketing effort.
The principals say the municipal bond market is roughly 60% of the size of the U.S. Treasury market. For a market of its size, however, they continue, the municipal market is extremely inefficient due to constraints imposed on both issuers and the larger investors in the market. They say these inefficiencies provide profitable opportunities for a variety of relative value and arbitrage trades.
The Fund’s main focus is to implement relative value fixed-income strategies that capitalize on mispricings within the tax-exempt market and between the tax-exempt and taxable fixed-income markets. In addition to intra-market and cross market relative value strategies, the Fund will also utilize forward bond, bond structure, ratio curve and money market strategies.
“We think we can offer investors profitable access to a market that, up to this point, has really only been exploited by the proprietary trading desks at investment banks,” says Jim Wise.
The Fund employs active portfolio management and differentiates itself from other offerings in the municipal universe in that it varies leverage, scaling it to the extent of the perceived opportunity. As a result the Fund is expected to use less leverage than comparable offerings, which is in keeping with its focus on risk management. The Fund’s strategy is trading based, making it quite different from some of the Funds being offered to Private Banking clients that are only designed to take advantage of the disparate slopes of the taxable and tax-exempt yield curves.
“We’re hard-pressed to understand how some of these other strategies can justify their fee structure when, from our vantage point, they are not actively managed,” says Chris Dillon. “The managers’ alpha in our Fund should be much higher.”
The two principals Jim Wise and Chris Dillon collectively have over 25 years of experience analyzing, structuring and trading municipal securities and are the former co-heads of JP Morgan’s tax-exempt Structured Product Group. While at JPMorgan they managed a proprietary portfolio of up to $2 billion. Mr. Dillon has been named one of the top municipal market strategists by Institutional Investor for 8 consecutive years.