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Hedge funds: Evolvence to open Gulf’s first hedge fund

Evolvence Capital, a Dubai alternative investment company, is on track to raise $150 million for what it claims is the region’s first hedge fund when it closes to investment next month.

The Evolvence Capital Semi-Exotic Equity Derivatives (Ecseed) fund was launched in April with $50 million of assets. It invests in equity and equity-derivative instruments in blue-chip companies in the Gulf.

"Our business is GCC equities," says Aaleddine Chahbi, head of convertibles and equity derivatives at the firm. "We also use derivatives in the investment process and are the only people to do so in the region."

As there are no public equity derivatives markets in the Gulf, Evolvence uses OTC derivatives. These are products privately written by leading investment banks, such as Deutsche Bank, Credit Suisse, and Goldman Sachs. But as these banks don’t have local licences in most of the Gulf markets, typically they first have to buy the underlying stock from local counterparts. Short selling is not allowed in the Middle East so the Ecseed fund executes its positions synthetically using instruments such as calls, puts, futures and swaps. The only non-vanilla securities that Evolvence can buy in the public markets are 14 structured equity products listed on the Dubai International Financial Exchange.

Chahbi says that equity derivatives will become more acceptable to investors in the region as they seek to take advantage of the high volatility often seen in the Gulf markets.

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