Nobel economist Merton to open new hedge fund

By Elzio Barreto

CAMPOS DO JORDAO, Brazil (Reuters) - Robert Merton, the Nobel Prize winner who co-founded the failed hedge fund Long-Term Capital Management, said his new firm plans to start an asset management business and open new hedge funds.

Trinsum Group, the firm created when Merton's Integrated Finance merged with Marakon Associates, will launch the new business before the end of the year, he said in an interview on Thursday.

The firm, which already has an emerging markets fund, also plans to offer "specialty funds," he said without giving more details.

"Asset management clearly is in our plan," Merton said on the sidelines of a financial derivatives conference in Brazil. "We will also have other funds."

Victoria, as the emerging markets fund is called, invests in fixed income, currencies and derivatives, and has "behaved better than expected," said Merton, a Harvard professor who won the 1997 Nobel Prize in economics with Myron Scholes for creating the Black-Scholes formula of pricing options.

The emerging markets fund, run by Jose Luis Daza, started in October 2005 and has about $150 million (75 million pounds) in assets now.

Merton said financial innovations such as credit default swaps have been a boon to Brazil and other emerging markets because investors can better mitigate the risks of putting funds in those countries.

LTCM, which was bailed out by a group of banks after losing billions of dollars in 1998 when Russia defaulted on its debt, wanted to invest in Brazil at the time, but did not because the firm wanted to avoid taking on currency risk.