Mitchell Julis and Joshua Friedman’s Canyon Value Realization Fund is another hedge fund that is up in July and shaking off the effects of chaotic markets of June. Yesterday we mentioned Loeb Arbitrage Fund has netted a gain of 1.8% through July 19, now CVRF, a multistrategy fund with focus on credit, has gained 1.6% in the same period.
Notably, Canyon’s RMBS portfolio was up only 2.3% on a gross basis in Q2. The low return is not surprising as in the last two months mortgage rates took a turn for the worse and related assets declined in value. Other securitized credit hedge funds had an even worse showing in June, as the best of mortgage hedge funds broke a long time streak of positive returns. Canyon also did well overall in its bond holdings in Q2, its investments in distressed debt and bonds were up in the past quarter. For the year CVRF is up 8.18% in the first half and 10% YTD through July 19. Canyon Capital Advisors has over $19 billion in assets, including its hedge fund and real estate investing and lending business.
Canyon in and out of bonds, increasing exposure in Europe
In the last quarter, Canyon cut down its exposure in sub investment grade and high yield bonds in April and May when these investments peaked. When these assets lost value and yields touched record highs in June, Canyon bought back these securities worth $750 million at cheap prices. In Canyon’s Q1 performance update, the firm intimated that it was increasing exposure in Europe, for the year so far Canyon has added $1.5 billion of market value to its portfolio and is up 14.7% gross in European region.
Canyon is very positive about its future in an economy with rising rates, and the fund has been able to generate 4% alpha relative to HY index and 2.5% alpha relative to S&P500 in the period when interest rates were rising, from May 2004 to June 2006.
Canyon fund’s performers and losers
The largest contributor to CVRF’s returns were positions in distressed bonds, up 6% in Q2 and 18% YTD. Holdings in distressed municipal debt was the only detarctor overall in Q2, down 2.4% for the quarter.
CVRF was up in its corporate debt positions in a U.K. travel agency and a U.K. fashion retailer while losing in the debt of a casino that had recently come out of bankruptcy. Canyon’s corporate bond portfolio gained 2% in Q2 and was up 9.2% YTD. In the equity book which was up 16.6% in Q1, the best returns came from a local TV broadcaster’s acquisition by a large media company.
The fund hired Lisa Ong and Mohamed Chahir. Ong has previously worked at Apollo Management whereas Chahir has experience in Goldman Sachs’ European Special Situations Group. Canyon also hired other analysts from Goldman Sachs, Morgan Stanley and Macquarie Bank, namely Sarah Fidler, Lois Duhourcau and Jeffrey Li.