Saba Capital's Flagship Fund Posts a 7% Drop This Year

  • European client puts $100 million in smaller tail-risk fund
  • Firm is making money in funds that invest in closed-end funds

Boaz Weinstein has lost money this year in his flagship credit fund as he waits for turbulence in the debt markets to return.

His Saba Capital Management’s main fund, which manages about $1 billion, dropped 7 percent in the first 11 months of 2017 after being one of the top hedge fund performers last year, according to a person with knowledge of the returns. Weinstein, 44, historically has made money exploiting the price differences of related credit securities, but the roaring bull market in credit has meant fewer opportunities for him to profit as volatility has plummeted.

“You could have never protected your downside for less than it costs today, yet so many people are not only not doing it -- they are actually on the other side of the trade and this is incredible,” Weinstein said in October at the Octavian Forum in New York hosted by Richard Hurowitz.

At least one client agrees with Weinstein that volatility will return. A European investor recently committed about $100 million for Saba’s separate tail-risk hedge fund, which aims to gain during periods of elevated market stress, said the person, who asked to not be identified because the information isn’t public.

A dive in bond prices could be a boon for Weinstein’s style of investing.

‘Overstretched’ Market

“Generally markets tend to be more volatile when there is a selloff," said Anindya Basu, a strategist at Citigroup Inc. “Investors have gotten into a frame of mind where they are not seeing significant risks on the horizon and that’s resulted in volatility going lower and lower. The market could take awhile until it realizes it’s overstretched.”

While Weinstein’s main fund has lost money, he’s posted gains in two hedge funds that invest in closed-end credit funds. He manages about $400 million in the two funds, which have climbed 10 percent and 20 percent this year. Weinstein also started the Saba Closed-End Funds ETF in March, and it has since returned 13 percent.

A spokesman for New York-based Saba Capital declined to comment. 

Since starting Saba in 2009, Weinstein has posted a mixed record. The former co-head of global credit trading at Deutsche Bank AG made money in the early years and in 2012 successfully bet against JPMorgan Chase & Co. trader Bruno Iksil, known as the London Whale. Assets peaked the following year at $5.5 billion.

Then he struggled as central banks embraced quantitative easing that reduced volatility in credit markets. Last year he made money again, with his main fund climbing 23 percent. Since inception, the main fund has returned about 3 percent a year on average, according to an investor document.

— With assistance by Simone Foxman

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