Costs & Risks

Introduction

The Savin Multi-Strategy Arbitrage Fund specializes in relative value trading strategies, or commonly referred to as arbitrage strategies. A strategy where we identify and exploit mispricing of one instrument compared to a closely related instrument’s pricing, using long and short positions. The type of instruments we trade include equities, bonds and derivatives such as options and warrants. 

Arbitrage strategies are active trading strategies. The mispricings we aim to capitalize on are often a result of volatile markets and or fleeting liquidity resulting in market inefficiencies and dislocations. The trading strategy does not involve making bets on the direction of markets or individual shares. That’s why the strategies are called market neutral. Positions in our arbitrage strategies are hedged, meaning long positions in a security are ‘countered’ by a short position in the same or closely related security. The so-called spread or price difference between the two securities is where we aim to make our returns. 

Multiple ‘sub-strategies’ fall within the relative value strategy. At Savin we aim for positive uncorrelated returns by blending equity arbitrage, credit arbitrage, volatility arbitrage and structured products arbitrage. Quantitative and systematic trading strategies that are designed, implemented and executed by our portfolio managers.

The nature of our relative value strategies allows the fund to be an investment uncorrelated with traditional investments such as equities and bonds. In a time where diversification through conventional assets is becoming increasingly difficult (as many are more correlated than they appear), this is where an investment in these strategies can add value to your investment portfolio. 

 

Costs

The fund charges management and performance fees for the various share classes. The Institutional Class has a management fee of 1.5% and a performance fee of 15% per annum.
The Lead Class has a management fee of 1.8% and a performance fee of 20% per annum.
For a complete overview of all classes and costs, please read the Prospectus.

 

Risks

This is an appropriate investment only for professional and other investors who are capable themselves of evaluating the merits and risks of an investment in the Fund.

Investing in the fund involves risks, these risks include:

 

Market Risk

Market risk is the risk that securities prices will fluctuate over time. This fluctuation includes both increases and decreases in security prices. The fund is subject to market risk. The value of the Fund’s investments, and the net asset value of the Fund, will fluctuate. There may be various reasons why markets fall, like recessions caused by a change in the economic business cycle or a pandemic. 

 

Leverage Risk

The Fund may employ leverage in executing its arbitrage investment strategies, in such amounts and subject to such terms and conditions as the Fund Manager may determine in its sole and absolute discretion. The use of leverage increases both the possibility for gain and the risk of loss. Leverage employed by the Fund may be secured by the Fund Assets. Under certain circumstances, a lender may demand an increase in the collateral that secures such obligations, and if the Fund is unable to provide additional collateral, the lender could liquidate assets of the Fund to satisfy such obligations. Liquidation in that manner could have extremely adverse consequences. In addition, the amount of the Fund’s borrowing and the interest rates on that borrowing, both of which will fluctuate, may have an effect on the Fund’s profitability.

 

Leverage Risk of Derivatives

The Fund’s use of swaps, futures contracts, options contracts and certain other derivative instruments may have the economic effect of financial leverage. Financial leverage magnifies exposure to the swings in prices of an asset underlying a derivative instrument and results in increased volatility, which means the Fund will have the potential for greater gains, as well as the potential for greater losses.

 

Illiquidity Risk

The Fund may experience difficulty in selling illiquid investments in a timely manner at the price that it believes the investments are worth. In addition, market conditions may cause the Fund to experience temporary mark-to-market losses, especially in less liquid positions, even in the absence of any selling of investments by the Fund.

 

Hedging Transactions Risk

The Fund employs various hedging techniques. The success of the Fund’s hedging strategy will be subject to the Fund’s ability to correctly assess the degree of correlation between the performance of the instruments used in the hedging strategy and the performance of the investments in the portfolio being hedged. Since the characteristics of many securities change as markets change or time passes, the success of the Fund’s hedging strategy will also be subject to the Fund Manager’s ability to continually recalculate, readjust, and execute hedges in an efficient and timely manner. For a variety of reasons, the Fund may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Such imperfect correlation may prevent the Fund from achieving the intended hedge or expose the Fund to risk of loss. 

 

Short Sale Risk

The Fund will suffer a loss if it sells a security short and the value of the security rises rather than falls. It is possible that the Fund’s long positions will decline in value at the same time that the value of its short positions increase, thereby increasing potential losses to the Fund. Short sales expose the Fund to the risk that it will be required to buy the security sold short (also known as “covering” the short position) at a time when the security has appreciated in value, thus resulting in a loss to the Fund. The Fund’s investment performance may also suffer if it is required to close out a short position earlier than it had intended. In addition, the Fund may be subject to expenses related to short sales that are not typically associated with investing in securities directly, such as costs of borrowing. Short positions introduce more risk to the Fund than long positions (purchases) because the maximum sustainable loss on a security purchased (held long) is limited to the amount paid for the security plus the transaction costs, whereas there is no maximum attainable price of the shorted security. Therefore, in theory, securities sold short have unlimited risk.

 

Derivative Risk

In general, a derivative instrument typically involves leverage, i.e., it provides exposure to potential gain or loss from a change in the level of the market price of the underlying security or currency (or a basket or index) in a notional amount that exceeds the amount of cash or assets required to establish or maintain the derivative instrument. Adverse changes in the value or level of the underlying asset or index, which the Fund may not directly own, can result in a loss to the Fund substantially greater than the amount invested in the derivative itself. Derivative instruments come in many varieties and may include futures and forward contract, options (both written and purchased) and swap contracts.

 

High Portfolio Turnover Risk

The investment techniques and strategies utilized by the Fund, including investments made on a shorter-term basis or in derivative instruments or instruments with a maturity of one year or less at the time of acquisition, may result in frequent portfolio trading and high portfolio turnover. High portfolio turnover rates will cause the Fund to incur higher levels of brokerage fees and commissions, which may reduce performance.

 

Small-Cap Securities Risk

Investments in or exposure to the securities of companies with smaller market capitalizations involve higher risks in some respects than do investments in securities of larger companies. For example, prices of such securities are often more volatile than prices of large capitalization securities. In addition, due to thin trading in some such securities, an investment in these securities may be less liquid (i.e., harder to sell) than that of larger capitalization securities. Smaller capitalization companies also fail more often than larger companies and may have more limited management and financial resources than larger companies.

 

Currency Risk

The Net Asset Value of the EUR-denominated, USD-denominated and CHF-denominated Classes may be affected by exchange rate fluctuations. For example, investments may be denominated in EUR, while the relevant Class may be denominated in USD or CHF. The Fund may hedge relevant Classes against a decline in the value of the Fund’s investments not denominated in the applicable Class currency resulting from currency devaluations of fluctuations. Additionally, certain of the Fund Assets may be denominated in currencies other than the EUR, USD or CHF while the Fund’s accounts will be denominated in EUR, USD and CHF, as applicable, returns on certain Fund Assets may be significantly influenced by currency risk. The Fund Manager may hedge against a decline in the value of the Fund’s non-EUR, non-USD and non-CHF denominated Fund Assets. Should the Fund Manager decide to hedge the risk of currency devaluations or fluctuations, the Fund Manager may not always succeed in realizing hedges under acceptable conditions and consequently the Fund may be subject to the risk of changes in the value of the currencies in which any of its assets are denominated.

 

Interest Rate Risk

Interest rate risk is the risk that prices of fixed income securities generally increase when interest rates decline and decrease when interest rates increase. The Fund may lose money if short-term or long-term interest rates rise sharply or otherwise change in a manner not anticipated by the Fund Manager.

 

Counterparty Risk

The Fund will be subject to the risk of the inability or refusal of payment or clearing institutions, principals or other service providers or other counterparties to its transactions, to perform or to perform in time under such services or transactions. Any such failure, refusal or delay, whether due to insolvency, bankruptcy or other causes, could subject the Fund to substantial losses. It is expected that the Fund Manager will seek to mitigate these risks by reviewing the creditworthiness and reliability of all service providers and counterparties and only entering into transactions with those parties that the Fund believes to be creditworthy and reliable.

 

Political Risks

Investment results may be adversely affected by developments in countries in which the Fund Assets or counterparties are located. This may result in a partial or complete loss by the Fund as a result of the breakdown of the country’s financial system. Such developments include, without limitation: war; civil unrest, ranging from protests to civil war; changes in the political situation and/or government of a country; acts of terrorism; expropriation and creeping expropriation; and inability to transfer moneys cross-border or convert moneys to hard currency. 

 

Legislation Risk

The regulatory and tax environment for investment funds in general as well as certain financial instruments and other types of investments are evolving and changes therein may adversely affect both the Fund’s ability to pursue its investment strategies and the value of its Fund Assets. The effect of any future regulatory or tax change on the Fund is impossible to predict. The fiscal status of the Fund may change during the term of the Fund. The Unitholders are urged to seek fiscal advice before participating in the Fund.

Unclear rules and regulations and conflicting advice may result in a breach of rules and regulations applicable to the Fund. Resulting fines and other sanctions and possible damage to the reputation of the Fund, the Fund Manager and other connected persons may result in a negative impact on the Net Asset Value of the Fund and the Units.

 

Model and Data Risk

The Fund Manager relies heavily on quantitative models and information and data supplied or made available by third parties (“Models and Data”). Models and Data are used to construct sets of transactions and investments, to provide risk management insights, and to assist in hedging the Fund’s investments. When Models and Data prove to be incorrect or incomplete, any decisions made in reliance thereon expose the Fund to potential risks. Similarly, any hedging based on faulty Models and Data may prove to be unsuccessful. The Fund bears the risk that the quantitative models used by the Fund will not be successful in selecting investments or in determining the weighting of investment positions that will enable the Fund to achieve its investment objective. All models rely on correct data inputs. If incorrect data is entered into even a well-founded model, the resulting information will be incorrect. However, even if data is inputted correctly, “model prices” will often differ substantially from market prices, especially for instruments with complex characteristics, such as derivative instruments. The Fund is unlikely to be successful unless the assumptions underlying the models are realistic and either remain realistic and relevant in the future or are adjusted to account for changes in the overall market environment. If such assumptions are inaccurate or become inaccurate and are not promptly adjusted, it is likely that profitable trading signals will not be generated, and losses may result. The Fund Manager, in its sole discretion, will continue to test, evaluate and add new models, which may result in the modification of existing models from time to time. There can be no assurance that model modifications will enable the Fund to achieve its investment objective.

 

Cyber security risk

The Unitholders are exposed to the risk of a cyber-attack or data breach at the level of the Fund Manager or at the level of the service providers. The Fund Manager and service providers have implemented measures to mitigate this risk.

Sustainability risk 
Sustainability risk in the context of the Fund is defined as the risk of a decrease in the value of an investment of the Fund due to an environmental, social or governance (ESG) related event. Such an event may have a direct negative impact on the financials of the investment or a longer-term impact on the operations or earnings capacity of the investment. The Fund has identified multiple sustainability risks which may impact the value of its investments to a varying degree.  

For a complete overview of all identified risks for investors, please read the Prospectus and relevant KIDs.