hedge funds

Canyon Partners manages over $19 billion in assets.  The firm was started by ex-Drexel Burnham traders; Josh Friedman , Mitchell Julis. The flagship hedge fund is the Canyon Value Realization Fund.

According to sources with direct knowledge of the matter, the Canyon Value Realization Fund had a 1.2 percent return for the second quarter, and 9.21 percent year-to-date for the period ending June 30, 2012. as of late July, the Fund was up 1.0 percent, bringing year-to-date returns to 10.4 percent. The S&P 500 for the same quarter was down 2.8 percent, and year to date was up 9.2 percent.

CVRF’s returns are result of investment in a variety of sources. Like in first half of 2012, gross returns in excess of 11 percent were due to investment in all major asset classes. The second quarter was marked by high volatility in all major risk asset categories, like credit, equities, interest rates, and commodities.

The current environment is represented by slow economies and currency crisis, which ultimately results in elevated volatility. CVRF has the potential to outperform other similar instruments, even under such adverse scenario. Not only this environment, characterized by a stark, largely government engineered absence of yield,can it act as a stimulus for the fund, as it specializes in evaluating complex credit risk at the wide end of the spread spectrum. In such scenarios where both traditional fixed income categories and non-fixed income assets, such as equities and commodities, are disappointing the investors, focus is bound to shift towards complex credit instruments.

From last year CVRF has reduced its exposure to overall debt and equity markets in such a way, it ultimately reduces its potential beta exposure. The major changes or strategies include:

  • Fund has reduced its total investment to about 13 percent cash, compared to almost full in August last year.
  • Fund has also reduced its equity exposure to about 5.5 percent, compared to around 14 percent in August last year.
  • Fund now focus more on high return debt exposure having similar characteristics.
  • Funds major portion, Non-Agency RMBS has shown improvement since last year.
  • Fund give importance to special situations related to credit specific events which results in capital appreciation.

These strategies worked quite well for CVRF in second quarter, preventing it from fluctuations in the broader markets. These strategies have also protected the fund from the Euro crisis, currently fund has around 6 percent long exposure to Euro assets.

During the first half of 2012, CVRF has turned over 12 percent cash (excluding sales). This was made possible due to cash received from liquidating an investment bank, along with other corporate events. Cash was also contributed by a sale agreement, with respect to its largest remaining equity position. Also in June, one of its equity holdings in specialty aerospace parts manufacturing reached an agreement with a strategic buyer for a purchase of the company.

The bulk of its corporate exposure is in liquidations, stressed credits, special situations, or rescue financings, and capital flight situations. Apart from corporate, Non-Agency RMBS is its largest allocation. While corporate exposure provides high return, even in absence of housing improvement, there are indications that domestic housing fundamentals may be improving and will provide support to the funds low dollar price holdings.

Canyon is bullish on US housing; noting tight demand, increasing demand, and a strong rental market. The fund is bullish on Europe, and had a large gain on European iTraxx Super Senior Tranche Credit default swaps hedges.