Boaz Weinstein’s Saba Capital Management LP posted a 6.8 percent decline in its main hedge fund in 2013, marking its second consecutive year of losses, according to a report sent to investors.
Saba’s fund tumbled 4.4 percent in December, according to the report, hurt by a wager that European equities would rise more than high-yield credit. The fund has climbed about 2.5 percent so far this year, according to a person familiar with its performance, who asked not to be identified because the fund is private.
Weinstein, who started Saba in 2009 to trade on price discrepancies between securities, won investor praise after beating rivals in 2011 amid the European debt crisis. While the firm’s assets fell to $3.9 billion as of Dec. 1 from $5.5 billion in May 2012, some investors are sticking with Saba. Gregg Hymowitz, whose EnTrust Capital Inc. has $300 million invested with Saba, said Weinstein will make money if prices of bonds move around more than they did last year.
“Boaz had a phenomenal 2011,” said Hymowitz, who heads EnTrust, a $10 billion firm that invests in hedge funds. “Since then, he has positioned his portfolio to take advantage of volatility -- and we haven’t seen it,” he said, adding that Saba is an important component of EnTrust’s portfolio because he will make money if volatility increases or markets go down.
Jonathan Gasthalter, a spokesman for Saba at Sard Verbinnen & Co., declined to comment on performance.
Weinstein, 40, in 2011 beat Bloomberg’s capital arbitrage credit hedge-fund index by about 8 percentage points with a return of 9.3 percent. Hedge funds industrywide fell about 5 percent that year as the European debt crisis roiled markets, according to data compiled by Bloomberg.
Weinstein, the former co-head of global credit trading at Deutsche Bank AG, attracted attention in 2012 after betting against JPMorgan Chase & Co. trader Bruno Iksil, known as the London Whale, who eventually cost the bank $6.2 billion. Even so, Saba still ended 2012 down 3.9 percent in its main fund.
Weinstein’s bets last year backfired as European stocks barely moved and the price of non-investment grade corporate bonds jumped, people familiar with his portfolio said last month.
Saba is wagering on a gain in European stocks by buying the Euro Stoxx 50 Future index. For the credit portion of the trade, Weinstein took a position in Markit Group Ltd.’s iTraxx Europe Crossover indexes covering about 2 billion euros ($2.7 billion), people familiar with his holdings said last month. The indexes are linked to the creditworthiness of 50 speculative-grade companies.
Buying the iTraxx index provides the purchaser with protection against a default of one or more of the underlying companies, and it rises in value as their financial health declines. In December, the stock indexes rose less than 1 percent, while the most easily traded of the credit indexes tumbled to 286.25 basis points at the end of the month from 320.58 on Nov. 29, according to prices compiled by Bloomberg.
Gabriel Roberts, who led global credit-index trading at Citigroup Inc., joined Saba this year in New York to oversee trading of benchmark credit-default swaps indexes in North America and Europe. Roberts and Weinstein previously worked together at Deutsche Bank.
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