Boaz Weinstein’s main hedge fund gained 25.5% in the year’s first two months as he bet against companies exposed to the coronavirus and benefited from some of the most violent market swings in almost a decade.
Weinstein’s $2.2-billion Saba Capital Management reaped gains trading credit default swaps, a sort of insurance against companies defaulting on their borrowings, according to an investor in the 11-year-old firm. He also profited from derivatives bets on companies in the retail and energy sectors.
A representative for Saba declined to comment.
Weinstein, the former co-head of credit at Deutsche Bank AG, generally does best when volatility is high, and the benign markets of recent years may have helped set the stage for his big haul. They forced other credit-derivative hedge funds to close and encouraged banks to pull back from trading the securities, leaving more opportunities for those who remained.
That placed Saba among a number of hedge funds that have avoided losses — and in some cases profited handsomely — amid rapidly growing concern the virus will hobble the global economy.
Weinstein’s firm started buying credit default swaps late last year on companies including Royal Caribbean Cruises Ltd., United Airlines Holdings Inc., online reservations company Sabre Corp. and movie-theater owner Vue International Bidco Plc, said the person. He sold the CDS at much higher prices last month. That helped his fund return about 17% in February.
He also bet on higher-grade companies including AT&T Inc. and IBM Corp. by writing insurance on their credit.
Saba also made money in capital structure arbitrage. Weinstein, for example, holds the debt of Victoria’s Secret owner L Brands Inc., and he used the interest payments to buy put options — wagers on stock prices falling — on the company several months ago. As the stock dropped 12% in the last two weeks of February, the puts jumped in value, more than covering declines on the debt.
He did similar trades on energy companies Transocean Inc. and YPF SA, according to the investor.
Weinstein’s funds, which also include a tail-risk product and a portfolio that invests in closed-end funds, have pulled in about $500 million so far this year. Returns and inflows have increased assets by almost $1 billion since the beginning of last year.