Boaz Weinstein’s Saba up double-digits year to date

Saba Capital Management may be the only hedge fund posting double-digit returns in most of its strategies for both March and 2020, with the flagship fund returning 67% so far in 2020. Officials report seeing enormous interest in the Saba funds as of late after having raised $500 million this year through early March. They have set a $1 billion cap on further subscriptions in its three main funds after which they will be closed to new capital for the rest of 2020. "I certainly did not expect it to come from a virus, but I have had the conviction – for a long time that investors needed to be ready for an extreme market decline," wrote Boaz Weinstein, the founder and chief investment officer at Saba, in a March 13 investment letter. Weinstein was shocked "how far banks have stepped back from taking risk," during the week of March 9 credit rout, as things got ugly. He added that in dozens of trades banks asked Saba to act as an agent instead of principal. Investors resorted to proxy hedging through credit default swap indexes (CDX) and exchange-traded funds (ETFs) as "they couldn't sell enough of what they owned," he wrote. These price dislocations gave Saba the opportunity to buy $80 million in credit positions at -14% and -20% NAV for its Capital Master Fund. Saba bought for its capital structure arbitrage strategy first-lien secured bonds and loans. The first-lien credits recover an estimated 50% more than unsecured debt in bankruptcy – "that is the true opportunity," said Weinstein. For tail hedge strategies, Saba expects to profit on the recession's to impact high-yield default rates, so the fund is positioning to short high-yield bonds. Saba sees opportunity in credit default swap spreads that are too low compared to equity volatility, which is already at 2008 extremes. Saba could not be reached for comment about its strategies. Meanwhile, pundits say that the decline in bond values is compounded by the lack of market-making, asset-liability mismatches, and deterioration of underlying assets held by weak borrowers with inflated ratings. Saba Capital's 2020 returns*

Boaz Weinstein’s Saba up double-digits year to date

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David Graubard

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David Graubard

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