Wolverine Asset Management – Best Convertible Arbitrage Manager
Wolverine Asset Management is a US-based alternative asset management firm and part of the Wolverine family of companies, a diversified group of affiliated financial service entities primarily engaged in asset management, derivatives trading, order routing and technology/software development.
Founded in 1994, Wolverine is headquartered in Chicago and has offices in San Francisco, New York and London, employing more than 300 people. The firm places great emphasis on technology and infrastructure, and invests heavily in these areas to trade derivative securities across a number of global exchanges.
Wolverine Asset Management itself was established in 2001 and combines this world-class execution technology with quantitative modelling, research, risk management and trading expertise to seek attractive risk-adjusted returns for its investors.
The Wolverine Convertible Arbitrage Fund is the firm’s flagship offering and uses a relative value approach based on WAM’s proficiency in volatility trading.
Chief investment officer Christopher Gust, who has more than 20 years’ investment experience, leads the WAM team and is responsible for overseeing all aspects of the firm and its investment activities. He heads the firm’s investment committee and is also co-founder of Wolverine Trading, where he has been the driving force behind its successful growth.
Commenting on market conditions over the past 12 months, Gust describes the convertible arbitrage space as “mixed, but fruitful”, noting that a continuation of the credit tightening theme has also brought a tightening of implied volatilities across the board.
“Success in 2010 required prowess in the specific selection of securities, as a greater percentage of the convertible universe moved from more credit-sensitive to more equity-sensitive,” he says, adding that managers who were able to hedge implied volatilities probably had an edge in performance.
The Wolverine Convertible Arbitrage Fund employs various strategies to supplement the capital structure strategy that represents two-thirds of the fund’s risk. The firm’s portfolio managers use a proprietary screening process when looking for mispriced securities to value layers of a firm’s capital structure. The portfolio is then hedged through a combination of listed equities options and futures.
Other strategies traded within the fund include fundamental equity market neutral, risk arbitrage and various volatility-based strategies. With respect to risk management, WAM’s goal is to achieve consistent returns while minimising idiosyncratic risks through diversification.
Gust attributes last year’s success to the disciplined repeatable process utilised by the investment team both in security selection and in the unique way it hedges the portfolio.
“Security rotation and the ability to generate revenues from trading continue to be the key challenges in 2011,” he says.
Wolverine partners and employees are the largest investors in the Convertible Arbitrage Fund, owning more than 20 per cent of its assets. The fund currently has more than USD1.4bn in assets under management. The fund has returned over 12 per cent compounded annually since 2005.
Gust says of winning the Hedgeweek USA Award 2011 for Best Convertible Arbitrage Manager: “The team at Wolverine is happy to be recognised, not only for its investment results, but also for its discipline in achieving those results. We strive to manage our portfolio in a conservative manner, continually attempting to hedge extreme risks whatever the market conditions. This award is an affirmation of the quality of our investment team, organisation and infrastructure.”
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