The asset manager Bantleon has created a new mutual fund for institutional investors called Bantleon Event Driven Equities that seeks to generate largely market-independent, equity-like returns from company-specific events through a structured investment approach. Its strategy exploits inefficiencies in the pricing of listed companies’ shares using a variety of event-driven return components. The return-focused core component of merger arbitrage is combined with other opportunistic event-driven criteria. The various components are strategically weighted in line with Bantleon’s macroeconomic outlook, with promising situations favoured over lower-risk ones in »risk on« phases and the reverse applying in »risk off« phases. Bantleon has already implemented this strategy successfully in individual portfolios.
The portfolio management team invests in shares of listed companies whose market value does not match the fair value calculated through analysis where it foresees special events specific to those companies that will act as a catalyst to close the valuation gap. Such events can range from »hard« factors (mergers, acquisitions, spin-offs etc.) to »soft« ones (e.g. turning points in business operations or restructuring). The Bantleon Event Driven Equities strategy is based on in-depth fundamental analysis of companies and transactions supported by quantitative analysis methods and rigorous risk management on a number of levels. Since market risks can be hedged at position level, the strategy has a lower correlation to traditional financial investments. It has a regional bias towards Europe and North America.
Bantleon Event Driven Equities is being launched in response to the currently difficult financial market environment. »Alternative sources of returns that are as independent as possible from the broad market are increasingly vital to institutional investors’ asset allocations in view of doggedly low interest rates, high equity valuations and increasing cross-correlation between asset classes,« explains Oliver Scharping, Portfolio Manager for global equities. »Event-driven equity strategies are one such alternative: investing in company-specific special situations can result in returns that are largely independent of the markets while also reducing volatility significantly compared with the broad equity market. These situations arise from transformative corporate, legal or regulatory events such as takeovers, spin-offs or shareholder activism. They also tend to reveal a temporary inefficiency on the part of the market in the form of a valuation gap,« he notes. According to Scharping, the job of the Bantleon Event Driven Equities management team is to »identify these inefficiencies and capture the profit generated by the valuation gap closing«.
Bantleon Event Driven Equities aims to achieve a high absolute return over the medium term. In times of crisis especially, its volatility should be much lower than that of the broad equity market. »The strategy is thus suited, for example, to investors who want to tap into an alternative, diversifying source of returns so as to enhance the risk/return profile of their conventional portfolios,« says Scharping.