Liberty Ermitage is co-launching a US-focused pure merger arbitrage fund to be managed by its partner...
The HBV management team, which comes mostly from merger arbitrage firms Milton Partners and Allen & Co, will concentrate on strategic transactions, sector specialisation, fundamental research and deal quality before deal spread.
Ron Mitchell, chief executive officer at the Liberty Ermitage Group, who will sit on the advisory board, said: "We are looking to generate superior returns as measured by SHARP, with low volatility and extremely low correlation with underlying markets.
Equity for the Bermuda-based single strategy fund, which is expected to be listed on the Irish Stock Exchange some time in July, will be drawn primarily from the US large/mid cap market, taking no position greater than 5%, with most being less than 3%.
There will be a strict risk management and monitoring regime with high emphasis on portfolio diversification and transactions with short maturities.
"The US has an excellent supply of quality deals - much better than Europe - that will enable us to build a diverse portfolio with the right risk profile," said Mitchell.
He emphasised that the current volatility in the US equity and bond markets and increased interest rates are both positives for the US merger arbitrage market.
"We are seeing the crumbling of the Nasdaq as we speak. It is a general slide. Bonds are also underperforming because of the increase in rates."
He added: "This will bring in new investors to the merger arbitrage market that are seeking to safeguard their capital."
Although stock-for-stock transactions are likely to be a dominant part of the funds portfolio, cash tenders will also be included.
Seeded with $15m by the Liberty Ermitage Group, the minimum investment will be $500,000 and the minimum transaction size of $100,000, with a $200m initial target.
Charges for the arbitrage fund include an 1% annual management charge and a 20% incentive. Investment will be on a monthly basis and redemption is subject to 60 days' notice.
HBV is a specialist merger arbitrage firm established in February 1999 with Mickey Harley, formerly head of investment research at Milton Partners.
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