A Message From The Fund Manager,
Adrian Courtenay

Dear Investor,

Welcome to the GA-Courtenay Special Situations Fund.

Our mission is to provide an enhanced investment fund that strongly aligns outcomes in favour of fund unit holders: a product designed to deliver consistently across diverse market conditions, a product that delivers performance advantage, and a product with high transparency.

We target this trajectory at the same time as being strongly adverse to speculation, and this means our activities must also be rational and understandable in terms of how they deliver for our unit holders.

Our approach

To deploy the capital of the fund, we identify opportunities across global developed markets using a three step approach focused on the universe of mergers, acquisitions, and other transactions that can result in significant changes to corporate trajectories.

1. First, the fund targets a comprehensive capture of robust merger arbitrage yields.

2. Second, an allocation to selected, high impact, equity special situation opportunities.

3. Finally, the fund maintains a layer of protection using index put options.

Our first step, the capture of those robust yields that are offered by the universe of merger arbitrage opportunities, underpins the fund’s ability to produce de-correlated and consistent annual returns, as a result of many arbitrages completing within each 12 month period. The short duration of each merger arbitrage (typically averaging 6 months, although our duration is often shorter as we do not necessarily invest at the timepoint of deal announcement) directly drives the de-correlation and consistency aspects of our strategy design.

However, there is a limitation to the occurrence of our preferred form of merger arbitrage opportunity. Despite our use of extensive proprietary search systems that deliver a strong advantage in terms of new merger arbitrage discovery rate, we find we can typically only invest in approximately 15% of all global merger arbitrages, as the remainder lack either the robustness or yield characteristics that we also seek. This is particularly a handicap for this fund as we do not embrace high stock-specific concentration levels, outside of exceptional circumstances. Furthermore, our product also has the potential for modest gearing, and as such we require a reasonable name count to deploy the fund’s capital fully.

Our outcome will be, during most periods, that merger arbitrage has the potential to deliver between high single digit and low double digit returns, relative to our net asset value. Yet the fund thereon also retains surplus capital and as such we also undertake our second step: the capture of selected, high impact, equity special situation opportunities to further drive performance.

Such equity special situations opportunities are identified from our focused study of the same domain that informs our merger arbitrage selections – that is, from the universe of continually developing mergers, acquisitions, and other transactions that can result in significant changes to corporate trajectories. Capturing the equity special situation form of opportunity is very reliant on our core advantage – deep dive research – and which can, when required, be undertaken in an accelerated manner to fully benefit from the “market inefficiency window” that can follow the announcement of a corporate transaction event. Over time, we anticipate our equity special situation opportunities to be a highly rewarding accretor above our base merger arbitrage yield, and we also provide for fund investors curated deep dive research publications on this website, such that the rationale for our opportunities outside of arbitrage can be well understood.

Finally, we protect the fund by deploying a modest proportion of our merger arbitrage yield into index put option protection, sufficient to both defend our merger arbitrage exposure from the impact of spread widening that can occur during market dislocation events and to largely neutralise the beta exposure from the fund’s selected equity special situations opportunities.

Achieving a fund structure that targets our outcomes – 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, which absent our strategy advantages can result in the crystallisation of losses at precisely the wrong time. Our approach, by its low correlation to the overall market, can also greatly accrete its performance during periods of market distress by being able to take advantage of forced selling by others.

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, for our equity special situations allocations, 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 which provides additional transparency with regard to our approach. Also available on the website are the fund’s research white papers, and shareholder letters and quarterly webinars 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