Stockholm (HedgeNordic) – In late 2021, Michael Falken and his team at Tidan Capital launched a hedge fund employing a capital structure relative value strategy, following a similar approach used at Brummer-backed Carve. After two years of underwhelming performance, Tidan Fund is enjoying a strong resurgence in 2024 as value transfer cases continue to materialize. The fund has advanced 10.9 percent year-to-date through mid-year, including a 3.0 percent gain in June alone. Tidan Fund is up an additional 2.5 percent month-to-date.
The positive trend in equity markets continued in June, defying expectations given the myriad of concerns facing market participants. “If someone had asked me to guess the financial market performance of June – having known the French election malaise surprise, Biden’s debate performance (or maybe lack of debate better describes it), escalation in the Russia-Ukraine war (with US weapons hitting Russian targets), huge Labour victory in the UK, China slowdown – I would have been wrong by a wide margin,” acknowledges Michael Falken, the founder and CIO of Tidan Capital. “On the other hand, things may not be as strong as Nasdaq’s gravity-defying performance may indicate,” he emphasizes, noting that the Eurostoxx 50 is down nearly two percent and high-yield credit spreads have widened in both Europe and the US.
“June was a great month for us as our value transfer cases continue to materialize.”
Michael Falken, Founder and CIO at Tidan Capital.
The month of June proved favorable for Tidan Fund’s relative value strategy, which aims to capitalize on mispricings and dislocations within companies’ capital structures. “June was a great month for us as our value transfer cases continue to materialize,” Falken comments on the June advance of 3.0 percent, which brought the year-to-date advance to over ten percent. After declining 9.1 percent in 2022 and 3.1 percent in 2023, Tidan Fund’s year-to-date advance of almost 14 percent has brought the fund’s inception-to-date cumulative return in touching distance of positive territory.
A key contributor to Tidan Fund’s June performance was electric-vehicle maker Rivian Automotive, specifically a relative value strategy involving a long position on convertible bonds and a short position on equity. In June, German auto giant Volkswagen pledged to invest $5 billion in the struggling US electric vehicle maker and create a joint venture to produce technology used by both automakers. With Rivian reporting losses and burning through cash, Volkswagen committed to an initial investment of $1 billion in Rivian in 2024 via a convertible note that will convert to Rivian common stock. “We exited the convertible bonds immediately as they traded up substantially on the open,” Falken reveals, providing more details about the successful relative value play.
“With economic indicators softening despite massive fiscal stimulus, the markets will need some Harry Potter magic to keep running at this pace.”
Michael Falken, Founder and CIO at Tidan Capital.
Looking ahead, Falken expresses caution regarding the positive trajectory of equity markets. “The earnings season is around the corner and expectations for the coming 12 months are high…in perspective, sky high!” says Falken. “Coming off six quarters of flat earnings for the S&P 500, the consensus now expects 12 percent growth over the next 12 months, with hockey-stick growth for Q3 and Q4 of 2024. This we can buy at a forward PE of 23x,” he continues. Falken also highlights a lag in credit strength compared to the S&P 500, stating, “Although it could be the canary in the coal mine, it is more related to equity premiums at levels seen last during the dot-com bubble.” Falken concludes by noting, “With economic indicators softening despite massive fiscal stimulus, the markets will need some Harry Potter magic to keep running at this pace.”
