Advent Capital, a $4 billion New York-based manager of hedge funds, mutual funds and separate accounts, last week launched an absolute return convertible hedge fund, Advent Enhanced Phoenix Fund. F. Barry Nelson, the fund's co-manager, told Alternative Investment News, a CIN sister publication, that the firm would be picking up pieces in the convertible market. "One big opportunity for a new convertible hedge fund is to take advantage of the carnage in the convertible market in the last 12 months, which has created unusual opportunities to invest in higher-yielding convertibles that are trading at little more than bond value and provide valuable out-of-the-money options," he said.
The Advent fund mirrors a long-only convertible fund the firm has managed since 1996. It will be capped between $350 million and $500 million. The fund leverages a portfolio of higher-yielding convertibles up to three times and opportunistically shorts the underlying stocks to reduce volatility and minimize downside risk.
The fund is geared to institutional investors. The minimum investment is $3 million. The fund carries a 1.5% management fee and a 20% performance fee. There is a one-year lock-up period with a 3% redemption fee in the second year. The fund is managed by Nelson and Tracy Maitland, founder and cio. The prime broker is Goldman Sachs.
The converts meltdown this spring claimed many victims in the hedge fund industry. On the whole, the CSFB/Tremont Hedge Fund Index' convertible arb index is down 4.74% year-to-date, which makes it the worst-performing of the 13 strategies tracked by the index. But many convertibles experts say the sector bottomed out in June, and see Advent's launch as further vindication of this analysis. Indeed, some prominent funds have already posted gains from the strategy. GLG Partners' market-neutral fund gained from its 62% exposure to converts last month. Eton Park Asset Management was among the firms seen buying back into the sector this June.