Leucadia Asset Management, the investment arm of Jefferies Financial Group Inc, is providing seed capital to a new hedge fund firm that will focus on trading securities issued by banks, according to a report by The Wall Street journal.

ISO-mts has been launched by long-time investments bankers Justin D’Ercole and Paul Feidelson. The pair first met in the early 2000s at Lehman Brothers and subsequently worked at Barclays and other Wall Street firms where they specialised in the origination and sale of new bonds.

The report cites unnamed sources as revealing that the firm's new long-short fund, which will bet on bank bonds and preferred securities, is targeting returns of around 10% annually, net of fees.

While the financial sector dominates corporate bond sales, accounting for 55% of the $840 billion issued in the first half 2022, few hedge funds specialise io bank securities because of the complexity of the instruments involved and hangover from the financial crisis of 2008 when some bank binds and preferred shares tanked.