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Hedge Fund Ownership

A theory about relativity

September 7, 2021

The handful of players adhering to the Relative Value Arbitrage strategy have one thing in common: They all have more assets under management now than they had three months prior. Not a lot of strategy groups can say that.

Relative-value arb takes advantage of price differentials between related financial instruments, such as the stocks and bonds of one company, by  buying and selling the different securities at the same time. Athanor Capital rode that pony to 89.3% AUM growth in one quarter, while Westchester Capital Management, Rivernorth Capital Management and Pinz Capital Management also benefited.

Benefited from what, though? Inflows? Certainly, but that had to follow investment success. Relative Value Arb only works if the values of two securities that ought to correlate don't. Firms like these ought to prosper because they play a valuable role in keeping markets efficient -- but when they're prospering this much, you have to ask: What's going wrong with the market?