Bond Prices and Banker Mistakes

Bond mis-marking.

The Public Sector Pension Investment Board of Canada sued Boaz Weinstein's hedge fund, Saba Capital Management, for mis-marking bonds in order to stiff the board on a redemption request. Here is the complaint, which does not strike me as particularly convincing. Saba had some poor performance -- its net asset value fell by more than half between 2012 and 2014; the board says, rather cruelly, that the "losses appeared to be unrelated to any market development that could or should have adversely affected the Fund's performance had the Fund been properly managed" -- and the board asked to redeem its money. According to the complaint, Saba had been valuing some McClatchy Company bonds based on a third-party pricing source, but when it was cashing out the board Saba and Weinstein "deviated from their past practice by using for the first time a different method for valuing the MNI bonds in the Master Fund's portfolio, namely, they used a bids-wanted-in-competition ('BWIC') process that purportedly produced materially depressed bids reflecting a significant liquidity/blockage discount from the values previously assigned by defendants to the Master Fund's holdings of MNI Bonds."