Merrion Capital and its parent, Iceland bank Landsbanki, are planning to invest in a new hedge fund that will be managed by the firm's current head of equities, Adrian O'Carroll.

The fund will be managed within Merrion and will have an initial investment of €50 million.

The stockbroking firm and Landsbanki are likely to put up around half of this figure between them, and the balance will be open to a limited number of outside investors. The hedge fund's initial focus will be on Irish equities, although it will take in European stocks as well. This will be broadened in time.

According to Merrion chief executive John Conroy, the fund's brief will be to track high performing stocks rather than to follow various indices.

"It will look for outperformers, it will not be interested in tracking markets," he said. "It will focus on absolute performance."

Merrion will launch the fund in the autumn and Mr Conroy said yesterday that a number of clients have already expressed interest in backing it.

He said that creating the fund was part of the firm's strategy of developing a suite of investment products.

Mr O'Carroll is one of the founders of Merrion Capital.

Enrique Curran is succeeding him as head of equities. Mr Conroy said yesterday that Mr Curran had been with the firm from the beginning and had developed a good reputation with institutional and corporate investors.

Landsbanki agreed the takeover of Merrion in late 2005 in a deal valuing the company at €55 million. However, the firm's performance since then means that the bank's final payment for the business will be over €100 million.