Tag Archives: brian-haskin

Steve Gerbel Explains How To Manage Merger Arbitrage Risk (Video)

By DailyAlts Staff In this video , Steve Gerbel explains merger arbitrage by making an analogy to air travel: “They say the safest place for an airplane is in the hangar, but that’s not what airplanes are for,” he says. When we fly, we want the reward of air travel, and we’re willing to take on some risk in pursuit of that reward – but we want the risk to be as minimal as possible. This, according to hedge-fund expert Mr. Gerbel, is what the SilverPepper Merger Arbitrage Fund does: it seeks the highest rewards for the least risk. What is merger-arbitrage? Mr. Gerbel explains with an example of a stock trading at $8.50. When another firm announces its intention to acquire it at $10 per share, the share price of the acquisition target might rise to $9.70 – the remaining $0.30 reflects the uncertainty that the deal might not go through, and this is where arbitrage comes in. By buying shares of the acquisition target after the announcement but before the deal is closed, SilverPepper seeks to make a predictable $0.30 gain on the deal. “Dime after dime,” this adds up. According to Mr. Gerbel, 96% of all announced mergers have closed, but his firm still undertakes extensive research before entering a trade. Mr. Gerbel likens this to a pre-flight checklist to ensure an airplane is safe to fly.

Aberdeen Reorganizes And Liquidates Arden Funds

Aberdeen, the new owner of institutional fund-of-hedge-funds firm Arden Asset Management, is shutting down and liquidating the Arden Alternative Strategies Fund (MUTF: ARDNX ) that Arden launched nearly three-and-a-half years ago. In addition, Aberdeen has reorganized a sister fund, the Arden Alternative Strategies Fund II, into the Aberdeen Multi-Manager Alternative Strategies Fund II (MUTF: ARDWX ). These moves come as the consequence of Aberdeen Asset Management’s acquisition of Arden, which was announced in August 2015 and completed on the last day of 2015. Early Success When the Arden Alternative Strategies Fund originally launched in November 2012, Fidelity Investments was the fund’s sole client. This proved to be a fruitful relationship as the fund grew to a peak of nearly $1.2 billion in assets in November 2014. With a strategic relationship in hand and outperformance in 2013 – beating the category by 416 basis points, with a return of +6.58% for the year – Arden launched a second fund in early 2014, the Arden Alternative Strategies Fund II, which was open to all investors. The original fund posted returns of -0.49% in 2014 and -3.44% in 2015, while the new fund returned +1.20% from its February 3, 2014 launch through the end of that year, followed by gains of 0.07% in 2015. Through February 29, 2016, the funds had respective returns of -2.27% and -1.14%. The Winding Down The underperformance of the original fund, along with likely re-allocations by Fidelity, caused its assets under management to fall from its peak of nearly $1.2 billion to $852 million as of the end of February 2016. While many firms would be delighted with assets at this level, Aberdeen decided to liquidate the fund. According to a February 24 filing with the Securities and Exchange Commission (“SEC”), the Arden Alternative Strategies Fund ceased taking money from new investors on February 29 and is expected to be fully liquidated by the end of March 2016. The fund’s Board of Trustees’ stated reasons for liquidating the fund were concerns over its “long-term sustainability.” As witnessed with other funds, single client risk, or client concentration, often looms large, and can result the liquidation of a fund on fairly short notice. Past performance does not necessarily predict future results. Jason Seagraves contributed to this article.

The Best And Worst Of February: Long/Short Equity

Long/short equity mutual funds and ETFs suffered another month of losses in February, falling 0.33% in the aggregate versus a drop in the S&P 500 Index of 0.13%. Of the universe of 179 funds with a full month of performance in February, only 65 managed to post monthly gains, but there were some particularly strong standouts. Nevertheless, the category saw total outflows of $399 million over the month and more than $3.9 billion for the year ending February 29, 2015. Will long/short equity funds be able to rebound and stem the outflows, or will the category continue to lose assets in March? Time will tell. Best Performers in February The three best-performing long/short equity funds in February were: QuantShares Hedged Dividend Income Fund (NYSEARCA: DIVA ) Gotham Absolute 500 Fund (MUTF: GFIVX ) Gotham Total Return Fund (MUTF: GTRFX ) The 1-year old QuantShares fund, with $3.6 million in assets, was February’s top performer, returning an astounding 9.26% for the month. For the year ending February 29, however, the fund was down 1.97%, but this was surprisingly good enough to rank in the top decile of the category. The fund’s one-year beta, relative to the S&P 500, was 0.45, but its alpha of -0.21% resulted in a Sharpe ratio of -0.35. Still, given the category’s substandard performance overall, investors invested a net $1.23 million in the fund for the year ending on Leap Day. Gotham’s pair of funds – GFIVX and GTRFX – ranked #2 and 3, respectively. The former returned +5.66% in February, giving it one-year returns of -2.83% through the end of the month, handily beating the S&P 500 Index, which fell 6.19% over the same period; while the latter returned +5.08% for the month, and didn’t have one-year returns since it launched on March 31, 2015. GFIVX, the more mature fund, had a 0.72 beta, alpha of 1.77% and volatility of 11.55% for the year ending February 29. This resulted in a one-year Sharpe ratio of -0.20, compared to that of the Index of -0.45. Worst Performers in February The three worst-performing long/short equity funds in February were: Neuberger Berman Global Long Short Fund (MUTF: NGBAX ) Catalyst Insider Long/Short Fund (MUTF: CIAAX ) Caldwell & Orkin Market Opportunity Fund (MUTF: COAGX ) The Neuberger Berman Global Long Short Fund was February’s worst-performing long/short equity fund, losing a stunning 8.59% for the month. This dropped its one-year return to -14.46% through the end of February, ranking in the bottom 10% of its category. Surprisingly, the fund enjoyed positive net flows for the year ending February 29, with investors putting $4.1 million more into the fund than they withdrew. Perhaps they’re attracted to the fund’s -0.06 beta coefficient, which is about as close to “uncorrelated” as you can get. But with a -15.40% one-year alpha, the fund’s low correlation hasn’t helped its investors much. The Catalyst Insider Long/Short Fund suffered monthly losses of 5.62% in February, which brought its one-year return through the end of the month to -3.21%. This was good enough to rank in the top quarter of the category, but not good enough to convince investors to stick with the fund – it suffered outflows of more than $7 million for the year. Perhaps investors looked past its attractive 1.47% alpha to its 17.33% annualized volatility, which ranked fourth out of the category’s 142 funds with one-year track records. Finally, the Caldwell & Orkin fund was the month’s third-worst performer with losses of 4.88%, but the fund ranked in the top 7% of its category based on its one-year returns of +1.38%. This was undoubtedly one of the reasons it received a whopping $87.47 million in net inflows for the year. Its one-year beta (-0.07), alpha (+1.26%), Sharpe ratio (0.19), and volatility (8.75%) were all attractive relative to the category averages, too. Past performance does not necessarily predict future results. Jason Seagraves contributed to this article. MPT statistics (alpha and beta) are relative to the S&P 500 Index.