Accelerate Arbitrage Fund

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About the Fund

The Accelerate Arbitrage Fund (TSX: ARB) provides exposure to SPAC arbitrage and merger arbitrage investment strategies.  The Fund aims to generate consistent, low-volatility returns by investing in listed equity, debt or derivative securities of target companies involved in mergers or corporate actions, while selling short certain listed equity, debt or derivative securities of acquiror companies involved in mergers or corporate actions, where applicable.

What is SPAC Arbitrage?

SPAC Arbitrage is an investment strategy that seeks to acquire shares or units of a special purpose acquisition company (“SPAC”) at or below its net asset value (“NAV”) in order to generate a return through either:

  • an exit at a premium to NAV once the SPAC announces a business combination
  • an exit at NAV, being the IPO price plus accrued interest, through a redemption before the deal vote or through the liquidation of the SPAC

What is Merger Arbitrage?

Merger Arbitrage is an investment strategy that capitalizes on the spread between a company’s current share price and the consideration paid for its acquisition in light of an announced merger transaction. The merger risk premium— or the spread between the acquisition price and the trading price of a stock—compensates the arbitrageur for the risk of the acquisition failing to close. The merger arbitrageur’s goal is to “lock in” the spread earned upon deal closing and to profit from buying a takeover stock at a discount to its acquisition price.

Investment Objectives:

  • Outperform the S&P Merger Arbitrage Index
  • Generate consistent, low-volatility returns
  • Provide an attractive distribution yield
QUICK FACTS

Type:
Event-driven

Structure:
Alternative ETF

Date Started:
April 7, 2020

Management Fee:
0.95%

Performance Fee:
None

Investment Manager:
Accelerate Financial Technologies Inc.

Distribution:
$0.17 per quarter

Exchange:
TSX

Currency:
CAD

Risk Rating:
Low

Historical Track Record

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Investment Process

Deal Evaluation & Selection 

Accelerate uses regulatory filings, media, proprietary data screens, and sell-side analyst reports to source merger arbitrage investment opportunities. Once sourced, a deal is then placed into the merger database where the team conducts a review of the data through; press releases, merger agreements, proxy statements, and additional due diligence materials. A proprietary “AlphaRank” risk rating is then assigned to each merger transaction. Furthermore, Accelerate calculates 2 key factors in the selection process; the merger yield and the implied odds of success to determine the securities’ risk rating. If the merger yield is attractive, and exceeds the investor’s cost of capital, the team will move forward with the next step in the investment process.

Risk Management

Five key factors are considered to ensure that risks are appropriately managed:

• Does the buyer lack credibility?
• Does the financing source lack credibility?
• Is the deal non-definitive?
• What is the extent of the regulatory risk?
• Is there a buy-side vote?

Buy-side votes allow shareholders to vote against the original proposed deal in order to get a premium from a hostile interloper offering more, causing potential losses for an arbitrageur.

Position Sizing & Portfolio Management

This process aims to limit the risk of loss on a deal break to a -2% NAV decline. “AlphaRank” risk ratings are also considered when allocating position sizes. Riskier deals may represent smaller allocations in the portfolio.

Execution

Merger arbitrage is typically conducted on a company’s common shares. However, there may be other opportunities to earn a merger spread, including through a company’s preferred shares or bonds, or through derivative securities such as options or warrants. If one is trading the common shares of a target in an all-cash deal, then the trade is fairly simple: the trader places their bid for the target at the desired price and waits to get hit. If the deal includes stock consideration, the trader first has to ensure the short borrow is secured in order to short the acquiror’s stock. Once short borrow has been secured, the trader can set up the spread. To implement this type of trade, one should use a pair trader. Pair traders work by trading both legs of a merger arbitrage spread, being the target and acquiror, at the same time. The trader sets the desired merger spread into the pair trading system, based on the merger consideration, and gets filled on both legs long and short.

Deal Monitoring

After successful deal analysis, risk mitigating, position sizing, and execution, the arbitrageur goes into monitor-mode. In the case of tender offers or takeover bids, shareholders must tender shares to receive the consideration amount, whereas in mergers, a vote must be cast and the type of consideration (cash or shares) elected. Shareholder votes and regulatory approvals need to be settled prior to the deal completion.

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Performance as of 2020-Dec-31

Ticker 1 Month 3 Months YTD 1 Year 3 Year Since Inception
ARB n/a n/a n/a n/a n/a n/a

Under current regulations, fund performance can only be published one year after its inception.

Fund Exposure
Deal Type Exposure

Fund Holdings as of 2020-Dec-31

Long Security Name Weight
Cincinnati Bell Inc 3.9%
7GC & Co Holdings Inc Units 3.5%
Willis Towers Watson PLC 3.4%
Varian Medical Systems Inc 2.9%
Executive Network Partnering Corp 2.8%
Tiffany & Co 2.8%
Acacia Communications Inc 2.7%
Longview Acquisition Corp 2.4%
Thunder Bridge Acquisition II 2.2%
Fitbit Inc 2.1%
MedTech Acquisition Corp Units 2.1%
Fast Acquisition Corp 1.8%
Navistar International Corp 1.7%
D8 Holdings Corp 1.6%
Empower Ltd 1.5%
Conx Corp Units 1.5%
Avanti Acquisition Corp 1.5%
Property Solutions Acquisition Corp 1.4%
Bluescape Opportunities Acquisition Corp Units 1.4%
Cardinal Resources Ltd 1.4%
Atlas Crest Investment Corp 1.4%
Lefteris Acquisition Corp Units 1.4%
Acies Acquisition Corp 1.4%
Northern Star Acquisition Corp Units 1.3%
HIG Acquisition Corp Units 1.3%
Churchill Capital Corp IV 1.3%
CITIC Capital Acquisition Corp 1.3%
Sports Entertainment Acquisition Corp Units 1.3%
Spring Valley Acquisition Corp 1.3%
Atlantic Avenue Acquisition Corp 1.3%
Roman DBDR Tech Acquisition Corp 1.2%
Lionheart Acquisition Corp II 1.2%
Cerberus Telecom Acquisition Corp 1.2%
Delwinds Insurance Acquisition Corp Units 1.1%
Sandbridge Acquisition Corp 1.1%
Vistas Media Acquisition Company Inc 1.1%
VG Acquisition Corp Units 1.1%
InterPrivate Acquisition Corp 1.1%
GX Acquisition Corp 1.1%
Software Acquisition Group Inc 1.1%
Tailwind Acquisition Corp 1.0%
EdtechX Holdings Acquisition Corp Units 1.0%
Foley Trasimene Acquisition Corp Units 1.0%
Landcadia Holdings III Inc Units 1.0%
Alpha Healthcare Acquisition Corp 1.0%
Juniper Industrial Holdings Inc 1.0%
Tekkorp Digital Acquisition Corp Units 1.0%
Osprey Technology Acquisition Corp 1.0%
TS Innovation Acquisitions Corp Units 0.9%
Better World Acquisition Corp 0.9%
IG Acquisition Corp Units 0.9%
Experience Investment Corp 0.9%
Vector Acquisition Corp Units 0.9%
Forum Merger III Corp 0.9%
Horizon Acquisition Corp II Units 0.9%
NewHold Investment Corp 0.9%
GigCapital3 Inc 0.9%
E.Merge Technology Acquisition Corp 0.9%
Apollo Strategic Growth Capital 0.8%
Artius Acquisition Inc 0.8%
Recharge Acquisition Corp 0.8%
Montes Archimedes Acquisition Units 0.8%
Spartacus Acquisition Corp 0.8%
VPC Impact Acquisition Holding Units 0.7%
PTK Acquisition Corp 0.7%
Amplitude Healthcare Acquisition Corp 0.7%
FTAC Olympus Acquisition Corp 0.7%
Altimar Acquisition Corp Units 0.7%
Burgundy Technology Acquisition Corp 0.7%
Genesis Park Acquisition Corp Units 0.7%
GigCapital2 Inc 0.7%
AEA-Bridges Impact Corp Units 0.7%
East Resources Acquisition Corp 0.7%
PMV Consumer Acquisition Corp 0.7%
IG Acquisition Corp 0.7%
Kismet Acquisition One Corp 0.7%
NextGen Acquisition Corp 0.7%
Broadstone Acquisition Corp 0.7%
New Beginnings Acquisition Corp 0.7%
Duddell Street Acquisition Corp 0.7%
DPCM Capital Inc 0.7%
Yellowstone Acquisition Co Units 0.6%
Tiga Acquisition Corp 0.6%
Mallard Acquisition Corp Units 0.6%
Zanite Acquisition Corp Units 0.6%
Motion Acquisition Corp Units 0.6%
TWC Tech Holdings II Corp 0.6%
Consonance-HFW Acquisition Corp Units 0.6%
Cascade Acquisition Corp Units 0.6%
Seaport Global Acquisition Cor 0.6%
Kingswood Acquisition Corp Units 0.6%
OTR Acquisition Corp 0.6%
Far Peak Acquisition Corp Units 0.6%
Pine Island Acquisition Corp Units 0.6%
Jiya Acquisition Corp 0.6%
NEXTGEN ACQUISIT 0.6%
Edoc Acquisition Corp 0.6%
Galileo Acquisition Corp 0.6%
Breeze Holdings Acquisition Corp 0.6%
Northern Genesis Acquisition C 0.6%
Acamar Partners Acquisition Corp 0.6%
ArcLight Clean Transition Corp Units 0.5%
New Providence Acquisition Corp 0.5%
L&F Acquisition Corp/IL Units 0.5%
Mudrick Capital Acquisition Corp Units 0.5%
FinServ Acquisition Corp 0.5%
Blue Water Acquisition Corp Units 0.5%
NavSight Holdings Inc Units 0.5%
Mountain Crest Acquisition Corp 0.5%
KINS Technology Group Inc Units 0.5%
East Stone Acquisition Corp 0.5%
Omnichannel Acquisition Corp Units 0.4%
Aequi Acquisition Corp Units 0.4%
FG New America Acquisition Corp Units 0.4%
SC Health Corp 0.4%
Malacca Straits Acquisition Corp 0.4%
Chardan Healthcare Acquisition Corp 0.4%
Decarbonization Plus Acquisiti 0.4%
Ackrell Spac Partners I Corp Units 0.4%
Live Oak Acquisition Corp II Units 0.4%
Hudson Executive Investment Co 0.4%
Prime Impact Acquisition Inc Units 0.4%
Industrial Tech Acquisitions Inc Units 0.3%
ACON S2 Acquisition Corp Units 0.3%
Periphas Capital Partnering Corp Units 0.3%
PMV Consumer Acquisition Corp Units 0.3%
Ascendant Digital Acquisition Corp 0.3%
Capstar Special Purpose Acquisition 0.3%
Yunhong International 0.3%
Cohn Robbins Holdings Corp 0.3%
LGL Systems Acquisition Corp 0.3%
Fusion Acquisition Corp 0.3%
Seven Oaks Acquisition Corp Untis 0.2%
Union Acquisition Corp II 0.2%
Peridot Acquisition Corp Units 0.2%
DD3 Acquisition Corp II Units 0.2%
Americas Technology Acquisition Corp Units 0.2%
MP Materials Corp 0.2%
DFP Healthcare Acquisitions Corp 0.2%
CM Life Sciences Inc Units 0.2%
SCVX Corp 0.2%
CIIG Merger Corp 0.1%
Foley Trasimene Acquisition Corp Warrants 0.1%
Golden Nugget Online Gaming Inc Warrants 0.1%
Northern Genesis Acquisition C 0.1%
ACE Convergence Acquisition Corp 0.1%
FS Development Corp 0.1%
GigCapital3 Inc Warrants 0.1%
Spartacus Acquisition Corp 0.1%
Forum Merger III Corp Warrants 0.1%
Roman DBDR Tech Acquisition Corp Units 0.1%
Empower Ltd Units 0.1%
Avanti Acquisition Corp Units 0.1%
Cerberus Telecom Acquisition Corp Units 0.1%
PTK Acquisition Corp Warrants 0.1%
InterPrivate Acquisition Corp Warrants 0.1%
Roth CH Acquisition I Corp 0.1%
Property Solutions Acquisition Corp Warrants 0.1%
Breeze Holdings Acquisition Corp Warrants 0.1%
Avanti Acquisition Corp Warrants 0.1%
NewHold Investment Corp Warrants 0.1%
Roman DBDR Tech Acquisition Corp Warrants 0.1%
Short Security Name Weight
Aon PLC -3.7%
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