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We employ an event-driven, capital structure arbitrage approach to investing, looking to unlock value by capitalizing on opportunities when various parts of the capital structure are pricing-in different probabilities of an event taking place. The strategy applies modeling and indenture analysis seeking to profit from convertibles that may be misunderstood by the marketplace. The strategy takes a disciplined approach towards hedging, including utilizing predominantly issuer-specific credit hedges, which we believe enables the strategy to protect on the downside in the event of severe market or issuer distress.
We also invest in structured convertibles which entails, among other things, conducting in-depth fundamental analysis and structuring experience seeking to provide customized financing solutions predominantly to growth companies.
We seek to profit from mispriced volatility within and across issuers and sectors. Our volatility Portfolio Managers also assist other parts of the Hudson Bay investment team in constructing option overlays with the goal of optimizing the risk/reward profile of our investments ahead of events such as earnings announcements and M&A outcomes.
We look across the capital structure seeking to take advantage of dislocations created by corporate events, catalysts and change. We attempt to generate additional alpha by trading the pathway or turbulence around an event.
We perform fundamental analysis across a diversified set of industries and invest in equity and equity-linked securities. The discipline imposed by the Deal Code process and its emphasis on investment-level hedging and accountability differentiates our equities strategy. We also aim to combine our equity sector-specific Portfolio Managers with those in different disciplines to capture synergies across the firm.
We seek to generate alpha by focusing on the relationships that connect corporate bonds, convertible bonds, bank debt, credit derivatives, credit indices, and equities. The strategy involves both capital structure arbitrage opportunities as well as relative value opportunities across issuers.
We believe the key to consistent performance is to create and maintain a diversified portfolio of high-conviction, independent, and limited loss Deal Codes.
We evaluate our investment ideas at the position (or Deal Code) level. Neutralizing beta at the position level simplifies portfolio management and, in our opinion, enables the portfolio to benefit from the power of diversification. Risk guidelines set at the Deal Code level foster the construction of a portfolio of independent, diversified trades with limited downside.
We utilize RMon, a proprietary risk monitoring system, to facilitate daily monitoring of portfolio diversification through our patented statistical measure, the Gerber Statistic2 . We created this system in response to our concern that the common measures for diversification, such as correlation and covariance, have not kept pace with the increasing complexity and dynamism of financial markets.
This infrastructure – built by a strong team of business professionals – promotes insight and transparency across all departments. Communication among our business and investment teams enhances our ability to trade in a stable and secure environment.
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