SkyBridge FoFs reports structured credit losses

SkyBridge Capital founder Anthony Scaramucci reassured investors that going forward, his public appearances and commentary would center squarely on the markets and not politics. According to an investor letter obtained by Alternatives Watch, his fund of hedge funds performance struggled with losses of -22% for the year-to-date through April 21 – which is a performance story he also plans to turn around. At the same time, for better or worse he has made numerous appearances in media outlets commenting on President Trump’s pandemic strategy in recent days. Launched in 2003, SkyBridge’s Series G fund of funds saw its annualized returns dip to -20% for the 12 months ending March 31, while the HFRI fund of funds composite was down only -3.9% over the same time period. “Since the Fund’s inception, it has suffered a loss of greater than 4% in only one year,” wrote Scaramucci. “Suffice to say, we are carefully evaluating our investment processes, risk management and personnel, and we are going to make necessary changes.” Much of the firm’s investments are in niche credit opportunities that have had their own performance and liquidity challenges. Collateralized loan obligations (CLOs) represent the most fundamentally challenged sector in the portfolio, and this allocation has been scaled back to 4.5% of the long book, according to the mid-April investor letter. Six of Series G’s fund investments, namely Bayview Liquid Credit Strategies, EJF Debt Opportunities, Metacapital Mortgage Opportunities, Medalist Partners Harvest, Tempo Volatility, and Prophet Opportunity Partners suspended redemptions, and Hildene Opportunities constructively suspended redemptions. SkyBridge said that based on conversations with the managers, they expect most suspensions will be short-term in duration. For example, EJF anticipates paying redemptions for the quarter ending September 30, 2020, according to the letter. At the same time, investment chief Ray Nolte, who had been working on a multi-year glide path into an advisory role, is back to working full-time at the firm for at least the next two years. Back in February, Nolte sold ownership interests in SkyBridge and SkyBridge GP Holdings to Scaramucci, SkyBridge Co-Chief Investment Officer Troy Gayeski and SkyBridge President and Chief Operating Officer Brett Messing. And yet the $9.2 billion firm is still putting money to work. Series G made an approximately $170 million investment in the Canyon Balanced Fund for April 1, making it one of the top 10 positions in the Fund. Canyon is an approximately $22 billion hedge fund manager that specializes in high yield, convertible arbitrage, risk arbitrage, and special situations. The investment is a testament to a belief in the distressed credit cycle’s potential, according to the investor letter. “We have great confidence in Canyon Co-Chief Executive Officers Josh Friedman and Mitch Julis, and the fund’s de minimis use of leverage is appealing,” wrote Scaramucci. While the Canyon Balanced Fund experienced a substantial drawdown in March and existing investors have not been pleased with recent performance, SkyBridge saw the current situation as an attractive entry point and opportunity to buy quality assets at distressed prices. The firm pointed out that now structured credit is trading at 2009 levels despite stronger fundamentals and government action. The fund of fund firm’s best years were from 2009 through 2012 when the portfolio returned a compounded 14.57%. Structured credit returns explain much of the fund’s current losses. The three funds having the greatest impact on performance as of late are Angelo Gordon Mortgage Value Partners funds, Medalist Partners Harvest funds and Axonic Credit Opportunities. SkyBridge estimates that the fund’s larger managers outperformed smaller managers by approximately 6% in March. Scaramucci added that the team will be re-evaluating the optimal mix between large, medium and small managers.