January 8, 2019 / 7:55 PM / 15 days ago

Saba Capital's Tail Hedge Master Fund gains 25 percent in 2018

BOSTON (Reuters) - Saba Capital’s Tail Hedge Master Fund, which promises a sort of doomsday insurance through bets that perform well when markets spiral, ended 2018 with a 25 percent gain, a person familiar with the fund’s returns said on Tuesday.

FILE PHOTO: Boaz Weinstein, founder and chief investment officer at Saba Capital Management, speaks during the SALT conference in Las Vegas, Nevada, U.S. May 17, 2017. REUTERS/Richard Brian

For years, Boaz Weinstein, who founded the New York-based hedge fund a decade ago, was sure volatility would return to markets even as data showed trading conditions in early 2018 were among the most stable in over four decades.

By the year-end, markets nearly tumbled into bear market territory - defined as a 20 percent drop from the high - and Weinstein’s fund, designed to protect investors from unexpected events, surged.

The firm’s flagship Saba Capital Master Fund also performed well, climbing 11.1 percent.

A Saba spokesman declined to comment.

In December, when the average hedge fund lost money as markets plummeted, the Tail Hedge Master Fund gained nearly 20 percent, the person said.

Saba’s tail fund is one of a handful of portfolios that plays off of the definition of tail risk, which describes times when bigger shocks than normal occur. Capula Investment Management and Ionic Capital Management run similar funds.

Tail funds were not in high demand when the market kept moving higher. But even in early 2018, some institutional investors bet the market would eventually crack, and added money to Saba’s fund.

At the end of 2018, Saba’s total assets under management were $1.6 billion, up 25 percent from a year earlier. Saba’s portfolios that invest in closed-end funds, including its Saba Capital CEF Opportunities 1 Onshore portfolio, took in $250 million in new money late in 2018.

Here Weinstein often flexes his activist muscle by pushing management to take action and shrink the discounts at which the funds trade to their net asset value.

On Wall Street, Weinstein is best known for skewering JP Morgan’s so-called London Whale, when one of its traders in 2012 accumulated an outsized position in credit default swaps that cost the bank some $6 billion. CDS are often seen as insurance on loans, designed to protect in the case of defaults.

In 2018, Weinstein again won in the world of defaults by successfully picking the year’s two biggest — oilfield services provider Parker Drilling and retailer Sears Holdings Corp. In 2017, at the Robin Hood investment conference, Weinstein sounded the alarm bells on Parker Drilling, which filed for pre-arranged Chapter 11 in December.

Reporting by Svea Herbst-Bayliss; Editing by Bernadette Baum

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