A Message From The Fund Manager,
Adrian Courtenay

Dear Investor,

Welcome to GA-Courtenay Special Situations Fund.

We are a performance-orientated event driven strategy targeting absolute returns at low correlation to the market at large. The fund predominantly allocates to a global portfolio of high impact merger arbitrage opportunities, and targets competitive advantage through extensive proprietary systems combined with a repeatable deep dive research process.

Our investment philosophy, and strategy advantages

Our investment philosophy is that rational capital allocation should seek opportunities offering undervalued robustness and at the same time as rejecting the more speculative situation types that market participants can otherwise be drawn to.

The primary form of situation that we seek is the binding merger arbitrage contract. In merger arbitrage situations, the investor outlays cash in return for a legally binding contract that dictates, at the completion of the merger, a return of the cash to the investor at a premium. Whilst there are various forms of “outs” that a merger contract can have, our focus is on those merger arbitrages which are strongly enforced.

The fund’s modest size in terms of our assets under management adds an advantageous tailwind to our merger arbitrage activities. Many of the talented merger arbitrageurs will work at large funds, and yet there is a low incentive for these large arbitrage funds to deploy capital at the level of market capitalisations that form a reasonable part of our arbitrage holdings. The outcome is that we will often deploy capital into arbitrage opportunities which are free from serious competition. This advantage is combined with an absence of the normal deficiencies of smaller capitalisation stock investing from merger arbitrages (lack of forcing function to intrinsic value and above average risk of corporate governance deficits). Merger arbitrages, irrespective of capitalisation, possess a consistent form of binding contracts and enforced through government courts.

Our other advantages in merger arbitrage include the use of extensive proprietary systems delivering what we assess as an unmatched discovery rate of new opportunities across all global developed markets, and opportunities that other arbitrageurs will by our definition not have recognised. We also maintain extensive, and proprietary multi-decade high resolution litigation and mitigation history systems, combined with enforcement clause history systems, to understand with the full context of historical legal precedent antitrust scenarios and probabilities. An additional proprietary system captures arbitrage spread volatilities through historic market dislocation events (i.e. such as the 2020 covid market crash), providing for an optimisation of our risk management approach.

Consistency in performance and at a low correlation to the market at large

Achieving a fund structure that delivers performance at a low correlation to the overall market is critical for an intelligent fund management approach. Meaningful market downturns by their nature are also co-incident with fund unit holders themselves often being subjected to increased liquidity requirements, resulting in the crystallisation of losses at precisely the wrong time. As such, even when fund unit holders are not minded to redeem at a suboptimal points, other demands placed upon them can force redemptions regardless.

Additionally, a fund that has low correlation to the overall market can greatly accrete its performance during periods of market distress by being able to take advantage of forced selling by others.

Whilst traditional hedge funds achieve de-correlation by consistent market hedging, this introduces a great disadvantage – economic inefficiency. The stock market, as a dividend distributing construct whose earnings power over time also rises with inflation, is expensive to hedge over the long term. Other approaches to hedging, namely a stock specific short book, by its low forecast accuracy, can introduce comparable costs.

By contrast, with our approach, through our capital allocations predominantly in merger arbitrage, we achieve de-correlation yet without handicapping the efficiency of the fund. The fund will only in rare circumstances impose hedge costs relative to the overall market.

The fund’s merger arbitrage holdings deliver an additional advantage beyond simply lowering the market beta of the fund, they also allow the fund to have a higher consistency of returns than would otherwise be the case. The higher consistency rate results from the shorter duration of merger arbitrages (for our holdings, typically in the region of one to three months) combined with their legally binding nature. In each year, there will be many merger arbitrages completing, which significantly raises the consistency of our annual returns.

Our low correlation to the market twinned with our high consistency of returns thereon also allows the fund to safely deploy capital with modest leverage, delivering a further advantage through the amplification of our returns.

Our commitment to excellence

Since its inception in 2019, the fund has delivered net annual returns within the first decile of all UCITS hedge funds. However, relative to the highest performance hedge funds across the globe, our result has been closer to perfectly reasonable, rather than outlier.

Nevertheless, it is the highest performing group of managers that we aspire to compete with, and we do so today with a far greater enhancement of our own proprietary advantages in theory structure and systems, and further strengthened from the learnings informed by the fund’s first five years.

My commitment is to excellence on behalf of our unitholders: across the board robust, high quality merger agreements driving our merger arbitrage returns, and, whilst we do retain the optionality for, in rarer occasions, high impact equity or debt investments, holdings in this latter category are demanded at attractive pricing with robust cashflow, further driving performance at the fund level. However, and within this context, the fund will not tolerate the types of allocation that attempt to enhance returns by prioritising low pricing ahead of merger arbitrage or cashflow robustness, which, if embraced, can lead to uncertain outcomes or instances of permanent impairment of capital.

Please do review the content of our website, including our white papers and stock-specific presentations which provide detailed analysis relating to our approach. The fund’s shareholder letters and quarterly webinars are also available on the website, which provide regular updates to fund unitholders.

We look forward to hearing from you, and we hope to provide an excellent long-term home for your trusted fund allocation,

Warm regards,
Adrian Courtenay