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July 24, 2019  

Advent Capital Carving Out Volatility Book

Advent Capital is offering investors pure exposure to a well-performing volatility strategy within its flagship hedge fund.

The new vehicle, dubbed Advent Vega, manages an “idiosyncratic volatility-arbitrage” portfolio that has been a component of the multi-strategy Advent Global Partners Fund since 2011. The sub-strategy has generated an annualized gross return of 12.75% since Jan. 1, 2012, with no down years and an enviable Sharpe ratio of 2.1.

Advent, which runs $9 billion via a mix of hedge funds and long-only products, is telling investors it carved out the Advent Vega book at the request of a prominent U.S. endowment. The minimum investment for the fund is $3 million, and separate accounts are available to investors willing to commit at least $50 million.

“Many of our investors are concerned about geopolitical and financial-market uncertainty,” Advent managing director Alex von Ziegesar wrote last week in a note to investors. Advent Vega offers “a diversifying, non-correlated return stream that should benefit from volatility returning to the broader equity and credit markets.”

Advent Vega takes long- and short-volatility positions in the debt and equity securities of individual companies. Last month, for example, the portfolio profited from a position in homegoods retailer RH, whose shares plummeted 20% in May on concerns about weak home sales and a trade war with China, then soared 30% in June on positive earnings news. Advent had a position in RH’s bonds, which “provided an ideal instrument to capture the volatility, given its short duration, high bond floor and high gamma.”

The Advent Vega portfolio rose 14.3% in the first half, on a gross basis, versus a 3% increase for the HFRI Volatility Index and a 9.5% advance for the HFRI Equity Hedge Index. Advent Vega rose 5.7% last year, 14.25% in 2017 and 13.8% in 2016.

Investors in Advent Vega pay fees equal to 1% of their assets annually and 20% of their profits. The fund permits quarterly redemptions after a one-year lockup.