Looking back on Boaz Weinstein's bearish bets

By Simone Foxman

Tue Mar 18, 2014

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Absolute Return also revisits a plummeting Billion Dollar Club.

One year ago

In a keynote at the 2013 Absolute Return Symposium, Saba Capital Management founder Boaz Weinstein warned investors to be careful of rising interest rates and volatility. He was bearish on Japanese corporate bonds, and recommended that investors purchase credit default swaps on the debt of Kobe Steel and Oji Holdings Corporation. He saw opportunities in commercial mortgage-backed securities, which he believed would do twice as well as high-yield credit. And he staunchly believed that volatility was not going to get much lower.

A year later, only one in three of those ideas has played out. Bets on Japanese corporate CDS went sour; the price of five-year CDS for both companies has fallen substantially (41% for Oji and 55% for Kobe) since he spoke on March 21, 2013. Although the price of Japanese corporate bonds did decline somewhat last summer, they’ve since rebounded; the Bloomberg JPY Investment Grade Corporate Bond Index is up to 106.545 from 105.478 when Weinstein spoke. Indices of commercial mortgage-backed securities gained some value in the past year, but high-yield corporate bonds—on the whole—far outperformed them, contrary to Weinstein’s prediction. But implied volatility has increased since Weinstein’s keynote, with the VIX rising from 14 basis points last year to 15.64 as of Monday.

Whether because of these predictions or others, Saba fared poorly in 2013. According to the Wall Street Journal, the firm’s flagship fund lost 6.75% in 2013. The firm’s total assets fell by nearly $2 billion. Jonathan Gasthalter, a spokesman for Saba, declined to comment.

This year's Absolute Return Symposium, which will take place Wednesday, March 19 in New York City and features keynote speakers Steve Tananbaum, the founder and chief investment officer of GoldenTree Asset Management, and Michael Lewitt, co-founder and chief investment officer of credit-focused Eccles Street Asset Management.

Five years ago

The hedge fund industry was nursing its wounds after a disastrous 2008. A tornado had swept through Absolute Return’s Billion Dollar Club, our twice yearly list of billion-dollar-plus hedge fund firms organized by assets under management. Total assets of the 218 firms with more than $1 billion as of January 1, 2009 had fallen to $1.134 trillion; the Club had declined in size by $541 billion in just six months.

The latest Billion Dollar Club survey—to be released later this month—couldn’t look more different. According to our early findings, more firms than ever are likely to have assets exceeding $1 billion, and the value of those assets is likely to be higher than ever.

ISSN: 2151-1845 / CDC10004H

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