Boaz Weinstein’s main fund tacked on another gain in April to follow an exceptional first quarter. This year is shaping up to be the hedge fund manager’s best since he launched Saba Capital in 2009.
Saba Capital Partners is now up 77.2 percent for the year to date, according to an investor, with 3.78 percent added in April.
The hedged version of the Saba Capital Closed End Fund is up 5 percent for the year through April while the long-only version lost 19 percent or so, per the investor.
Saba, which specializes in relative-value strategies, told clients in an interim letter mid-March that it had raised more than $500 million this year for its master fund, tail-hedge fund, and carry-neutral tail fund, and plans to limit inflows at $1 billion. The firm now manages $2.7 billion.
Through mid-March, the Saba Capital Tail Fund was up about 175 percent, while the carry-neutral vehicle climbed about 54 percent, according to a client letter.
“We’re finding a lot of short term things to do,” Weinstein told Institutional Investor in a phone interview over the weekend. “There are not many relative-value credit hedge funds.”
On Friday, Saba filed a lawsuit against Voya Prime Rate Trust’s board and investment adviser, seeking to invalidate the closed-end fund’s recent hike in the votes required to elect a board nominee, Saba said in a press release. The amendment increased the threshold from a plurality of voted shares to 60 percent of outstanding shares eligible to vote.
This would make it more difficult for activist investors like Saba to change the board’s composition.
“The Voya board’s recent action, which directly targets Saba and was expressly designed to prevent Saba’s trustee nominees from being elected to the board, is a blatant act of entrenchment and an affront to shareholder democracy,” said Saba partner Pierre Weinstein in the press release.
Saba’s strong gains all year have been helped by its tail-risk hedging strategy.
In a special mid-March report to clients reviewed by II, the firm noted a lack of differentiation between credit-default swaps of highly levered companies rated B/BB/BBB and the CDS of less levered investment grade companies rated BBB/A.
“We believe a recession will produce a significant default rate affecting the HY [high yield] companies we are short far more than the IG [investment grade] companies we are long,” it stressed in the letter. CDS spreads — despite widening — also “appear far too low when compared with equity volatility, which is already at 2008 extremes.”
Saba has also benefited from its capital-structure arbitrage strategy. “We seized on the rare chance to buy 1st lien secured bonds and loans versus buying CDS on the unsecured part of the capital structure,” the letter said, adding that Saba has been earning between 300 and 500 basis points per year. The “true opportunity” of this strategy is the that first lien “is likely to recover” 50 points more than the unsecured debt in a bankruptcy, according to the letter.
Saba in March also seized on what it deemed to be a great opportunity in closed-end funds, aggressively buying funds at discounts to net asset value (NAV) of between 14 percent and 20 percent.
It is still buying funds at 15 percent to 16 percent discounts, selling out of some and buying new ones.
More recently, Saba has attempted to exploit dislocations between the bonds and CDS of the same companies.
Corporate bond prices have plummeted in price in the past month or so as bond mutual funds and exchange traded funds dumped paper in order to meet heavy redemptions.
Weinstein boasted, “In 22 years I have never seen such an opportunity in this relationship.”
