Magnum has launched a fund that invests in arbitrage and relative value opportunities in Asia, particularly in convertible bonds, capital structures, and mergers and acquisitions.
Magnum has launched a fund that invests in arbitrage and relative value opportunities in Asia, particularly in convertible bonds, capital structures, and mergers and acquisitions.
The 2M Asian Absolute Return Fund invests in opportunities that are low-beta, have a high degree of certainty, have positively biased outcomes, and allow for an arbitrage style of investment.
Its risk/merger arbitrage strategy targets special situations where a clear arbitrage or mispricing opportunity exists. This involves the simultaneous purchase of stock in a company being acquired and the sale of stock in its acquirer, using proprietary research to assess the likelihood of the announced deal being completed.
The fund’s convertible bond strategy targets a range of 30 to 40 companies across Asian countries and sectors. This strategy involves simultaneously buying convertible securities and selling short the same issuer’s common stock, based on research identifying convertibles priced inefficiently relative to the underlying stock.
The fund also uses capital structure arbitrage, taking advantage of mispricing between, for example, ordinary versus preferred shares. In addition, it uses a proprietary system of quantitative/statistical trading based on mean reverting price behavior – investing long and short in stocks that have strayed from their sector means.
When fully allocated, the fund takes a minimum of 20 positions per strategy, using diversification as part of its risk management strategy. In addition, portfolio and fund constraints are monitored daily, and for each portfolio there is a pre-determined allocation policy given risk/return and maximum loss.
Mike Munns and Jeff Lee, both formerly with Merrill Lynch, are directing the fund’s strategies.
