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 2021-Jan-29

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 2021-Jan-29

Long Security Name Weight
Acacia Communications Inc 3.92%
Cincinnati Bell Inc 3.54%
7GC & Co Holdings Inc Units 3.18%
Willis Towers Watson PLC 2.99%
Churchill Capital Corp IV 2.73%
Varian Medical Systems Inc 2.66%
Property Solutions Acquisition Corp 2.39%
MedTech Acquisition Corp Units 1.91%
Vickers Vantage Corp I Units 1.73%
Fast Acquisition Corp 1.72%
Navistar International Corp 1.56%
26 Capital Acquisition Corp Units 1.48%
Monument Circle Acquisition Corp Units 1.44%
Executive Network Partnering Corp 1.44%
D8 Holdings Corp 1.41%
Empower Ltd 1.38%
Conx Corp Units 1.37%
IG Acquisition Corp 1.36%
Avanti Acquisition Corp 1.34%
Acies Acquisition Corp Units 1.32%
Atlas Crest Investment Corp Units 1.30%
Lefteris Acquisition Corp Units 1.28%
HIG Acquisition Corp Units 1.25%
Spring Valley Acquisition Corp 1.23%
CITIC Capital Acquisition Corp 1.21%
Sports Entertainment Acquisition Corp Units 1.19%
Marlin Technology Corp Units 1.17%
Atlantic Avenue Acquisition Corp 1.16%
Adit EdTech Acquisition Corp Units 1.16%
Roman DBDR Tech Acquisition Corp 1.15%
VG Acquisition Corp Units 1.13%
NextGen Acquisition Corp 1.13%
Cerberus Telecom Acquisition Corp 1.11%
Sandbridge Acquisition Corp 1.05%
Lionheart Acquisition Corp II 1.03%
Software Acquisition Group Inc 1.01%
Delwinds Insurance Acquisition Corp Units 1.00%
Tailwind Acquisition Corp 0.94%
PMV Consumer Acquisition Corp 0.91%
Osprey Technology Acquisition Corp 0.87%
Horizon Acquisition Corp II Units 0.85%
NewHold Investment Corp 0.84%
E.Merge Technology Acquisition Corp 0.80%
Apollo Strategic Growth Capital Units 0.79%
FTAC Olympus Acquisition Corp 0.77%
Montes Archimedes Acquisition Units 0.76%
Artius Acquisition Inc 0.74%
Bluescape Opportunities Acquisition Corp 0.71%
Spartacus Acquisition Corp 0.71%
Recharge Acquisition Corp 0.70%
Zanite Acquisition Corp Units 0.67%
Burgundy Technology Acquisition Corp 0.67%
Amplitude Healthcare Acquisition Corp 0.63%
DPCM Capital Inc Units 0.63%
East Resources Acquisition Corp 0.62%
AEA-Bridges Impact Corp Units 0.62%
Tiga Acquisition Corp Units 0.62%
PTK Acquisition Corp 0.62%
Broadstone Acquisition Corp 0.61%
Duddell Street Acquisition Corp 0.61%
Far Peak Acquisition Corp Units 0.59%
Kismet Acquisition One Corp 0.59%
LightJump Acquisition Corp Units 0.58%
Vistas Media Acquisition Company Inc 0.58%
New Beginnings Acquisition Corp 0.58%
Cascade Acquisition Corp Units 0.58%
TWC Tech Holdings II Corp 0.57%
Tekkorp Digital Acquisition Corp Units 0.57%
OTR Acquisition Corp Units 0.57%
Kingswood Acquisition Corp Units 0.57%
Breeze Holdings Acquisition Corp 0.55%
EdtechX Holdings Acquisition Corp Units 0.53%
Better World Acquisition Corp Units 0.53%
Alpha Healthcare Acquisition Corp 0.52%
Edoc Acquisition Corp 0.52%
Galileo Acquisition Corp 0.52%
Oyster Enterprises Acquisition Corp Units 0.52%
Vector Acquisition Corp Units 0.49%
Mudrick Capital Acquisition Corp Units 0.46%
NavSight Holdings Inc Units 0.46%
Blue Water Acquisition Corp Units 0.44%
KINS Technology Group Inc Units 0.44%
FG New America Acquisition Corp Units 0.40%
Aequi Acquisition Corp Units 0.40%
Omnichannel Acquisition Corp Units 0.38%
Pine Island Acquisition Corp 0.38%
Genesis Park Acquisition Corp Units 0.37%
CF Acquisition Corp V Units 0.37%
Malacca Straits Acquisition Corp 0.36%
SC Health Corp 0.36%
Ackrell Spac Partners I Corp Units 0.34%
Seaport Global Acquisition Corp Units 0.33%
Consonance-HFW Acquisition Corp Units 0.33%
Yellowstone Acquisition Co Units 0.33%
Live Oak Acquisition Corp II Units 0.32%
Motion Acquisition Corp Units 0.32%
Jiya Acquisition Corp 0.32%
Ascendant Digital Acquisition Corp 0.31%
Mallard Acquisition Corp 0.31%
Bright Lights Acquisition Corp 0.29%
Capstar Special Purpose Acquisition Corp 0.29%
L&F Acquisition Corp Units 0.28%
Cohn Robbins Holdings Corp 0.28%
LGL Systems Acquisition Corp 0.28%
LMF Acquisition Opportunities Corp Units 0.28%
Seven Oaks Acquisition Corp Untis 0.22%
Decarbonization Plus Acquisition Corp 0.21%
Chardan Healthcare Acquisition Corp 0.20%
Americas Technology Acquisition Corp Units 0.19%
ACON S2 Acquisition Corp Units 0.19%
Industrial Tech Acquisitions Inc Units 0.18%
Prime Impact Acquisition Inc Units 0.18%
Periphas Capital Partnering Corp Units 0.18%
Athlon Acquisition Corp 0.18%
Biotech Acquisition Corp Units 0.18%
Global Partner Acquisition Corp 0.17%
Yunhong International 0.17%
Mason Industrial Technology Inc Units 0.17%
TLG Acquisition One Corp Units 0.17%
Bluescape Opportunities Acquisition Corp Units 0.15%
Fusion Acquisition Corp 0.15%
SCVX Corp 0.14%
Peridot Acquisition Corp 0.12%
Union Acquisition Corp II 0.11%
CM Life Sciences Inc Units 0.11%
DD3 Acquisition Corp II Units 0.11%
Ignyte Acquisition Corp 0.11%
DFP Healthcare Acquisitions Corp 0.10%
Empowerment & Inclusion Capital Units 0.09%
Empower Ltd Units 0.09%
European Sust Growth Acquisition Corp Units 0.07%
Authentic Equity Acquisition Corp Units 0.07%
Z-Work Acquisition Corp Units 0.07%
Clarim Acquisition Corp Units 0.07%
EQ Health Acquisition Corp Units 0.07%
HealthCor Catalio Acquisition Corp 0.07%
Roman DBDR Tech Acquisition Corp Units 0.06%
Spartacus Acquisition Corp Units 0.06%
Bluescape Opport Acquisition Corp Warrants 0.06%
Avanti Acquisition Corp Units 0.06%
Cerberus Telecom Acquisition Corp Units 0.06%
IG Acquisition Corp Units 0.05%
Short Security Name Weight
Aon PLC -3.19%
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