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:
$0.15 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-Sept-30

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-Sept-30

Long Security Name Weight
Northview Apartment RIET 4.8%
Cincinnati Bell Inc 4.6%
Advanced Disposal Services Inc 3.6%
Acacia Communications Inc 3.0%
Wright Medical Group NV 2.9%
TD Ameritrade Holding Corp 2.9%
Cardinal Resources Ltd 2.3%
Churchill Capital Corp IV 2.2%
On Deck Capital Inc 2.2%
Tiffany & Co 2.2%
Thunder Bridge Acquisition II 2.0%
Delphi Technologies PLC 2.0%
Momenta Pharmaceuticals Inc 2.0%
Willis Towers Watson PLC 1.9%
PTK Acquisition Corp 1.9%
Amplitude Healthcare Acquisition Corp 1.8%
VPC Impact Acquisition Holding 1.8%
InterPrivate Acquisition Corp 1.8%
Taubman Centers Inc 1.7%
D8 Holdings Corp 1.7%
DiamondPeak Holdings Corp 1.6%
Galileo Acquisition Corp 1.5%
GigCapital3 Inc 1.5%
Forum Merger III Corp 1.5%
Foley Trasimene Acquisition Co 1.5%
CITIC Capital Acquisition Corp 1.5%
Property Solutions Acquisition 1.4%
Pivotal Investment Corp II 1.4%
TMAC Resources Inc 1.4%
NewHold Investment Corp 1.3%
Trine Acquisition Corp 1.3%
Fitbit Inc 1.2%
GX Acquisition Corp 1.2%
FTAC Olympus Acquisition Corp 1.2%
Lionheart Acquisition Corp II 1.2%
Acamar Partners Acquisition Co 1.2%
Novus Capital Corp 1.2%
Juniper Industrial Holdings In 1.2%
Osprey Technology Acquisition 1.1%
Mountain Crest Acquisition Cor 1.1%
Gilat Satellite Networks Ltd 1.1%
GigCapital2 Inc 1.0%
New Providence Acquisition Cor 1.0%
Northern Genesis Acquisition C 1.0%
Software Acquisition Group Inc 1.0%
Malacca Straits Acquisition Co 1.0%
Central European Media Enterpr 1.0%
SC Health Corp 1.0%
Longview Acquisition Corp 1.0%
LifeSci Acquisition Corp 1.0%
Chardan Healthcare Acquisition 0.9%
E.Merge Technology Acquisition 0.9%
NavSight Holdings Inc 0.9%
Yunhong International 0.9%
Prime Impact Acquisition I 0.8%
Experience Investment Corp 0.8%
Industrial Tech Acquisitions I 0.8%
PMV Consumer Acquisition Corp 0.8%
IPL Plastics Inc 0.8%
Alpha Healthcare Acquisition C 0.8%
Artius Acquisition Inc 0.8%
Tailwind Acquisition Corp 0.8%
Capstar Special Purpose Acquis 0.8%
LGL Systems Acquisition Corp 0.8%
Fusion Acquisition Corp 0.7%
Union Acquisition Corp II 0.6%
RMG Acquisition Corp 0.5%
DFP Healthcare Acquisitions Co 0.5%
ArcLight Clean Transition Corp 0.5%
Peridot Acquisition Corp 0.5%
East Stone Acquisition Corp 0.5%
CM Life Sciences Inc 0.4%
FinServ Acquisition Corp 0.4%
SCVX Corp 0.4%
FS Development Corp 0.3%
Ascendant Digital Acquisition 0.3%
Hudson Executive Investment Co 0.3%
dMY Technology Group Inc 0.3%
ACE Convergence Acquisition Co 0.3%
ROTH CH ACQUISITION I CO 0.3%
Live Oak Acquisition Corp 0.3%
Fortress Value Acquisition Cor 0.3%
Landcadia Holdings II Inc 0.2%
Landcadia Holdings II Inc 0.1%
Property Solutions Acquisition 0.1%
Fortress Value Acquisition Cor 0.1%
Juniper Industrial Holdings In 0.1%
E.Merge Technology Acquisition 0.1%
Leisure Acquisition Corp 0.1%
South Mountain Merger Corp 0.1%
CIIG Merger Corp 0.1%
D8 Holdings Corp 0.1%
Property Solutions Acquisition 0.1%
Short Security Name Weight
Charles Schwab Corp/The -2.8%
Aon PLC -2.1%
Enova International Inc -2.1%
BorgWarner Inc -2.0%
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