Typically dominated by individual investors seeking a yield, closed-end debt funds have become the latest hedge fund playground as they seek to profit from assets trading at their widest discounts to NAV since the financial crisis.
Behind the discounts was last year's big jump in interest rates which sent the value of fixed-income assets way down. Too far down, say the hedge funds.
Boaz Weinstein's Saba Fund (known among other things for landing the London Whale), has amassed $847.3M in publicly traded funds since beginning to buy last year. Pine River Capital has loaded up on nearly $160M worth.
Among Weinstein's purchases are $75.7M of Pimco's Dynamic Credit Income Fund (PCI +1%) - making Saba the largest holder - $78.5M of BlackRock's Corporate High Yield Fund (HYT +0.3%), and $41.5M of BlackRock's Credit Allocation Income Trust (BTZ +0.6%).
Also a large owner of PCI and HYT, Pine River has 1.4M shares of DoubleLine's Income Solutions Fund (DSL +1.6%).
The magnitude of these purchases is unprecedented, says Warren Antler who specializes in CEF analysis at AST Fund Solutions.