Stockholm (HedgeNordic) – Despite October’s negative returns for both credit and equity markets, the month marked another record for Tidan Fund, a hedge fund specializing in capital structure opportunities. The fund gained 5.4 percent in October, matching its previous best month on record set just two months earlier in August. Tidan Fund now ranks as the third best-performing hedge fund in the Nordic region this year, with a year-to-date return of 32.4 percent.
“Unsurprisingly, financial markets were infatuated with the U.S. elections during the month of October and everything else took a backseat,” writes Michael Falken, CIO and co-founder of Tidan Capital, in their latest letter to investors. There were some notable moves, however, “with U.S. rates widening substantially driven by fears of reckless government spending and potential tariffs, which could potentially let the inflation genie out of the bottle,” according to Falken. This had a negative impact on global equity markets, particularly in Europe, which “took the brunt of the pain.” Out of major global financial asset classes, only precious metals and oil recorded positive gains for the month.
“Once again, the main driver behind the strategy’s uncorrelated returns was a number of value transfer events playing out.”
Despite challenging market conditions, October turned out to be another record month for Tidan Fund. “Once again, the main driver behind the strategy’s uncorrelated returns was a number of value transfer events playing out,” explains Falken. Launched in October 2021, Tidan employs a capital structure relative value strategy, similar to the approach used by Brummer-backed Carve, where Falken was previously a portfolio manager. The fund aims to capitalize on mispricings within companies’ capital structures. After a slow start, Tidan has surged in 2024 as more value transfer opportunities have emerged.
One such event occurred with Lucid, which raised equity in October, bringing in public investors alongside its main shareholder, the Saudi Public Investment Fund. “The stock traded down 18 percent on the day, whilst the convertible bonds traded up 14 percent – the ultimate value transfer event one can ask for,” says Falken. Another noteworthy event involved New Fortress Energy, which addressed its short-term debt maturities by executing multiple transactions, including raising fresh equity. “There were several other strong performers. Lumen stood out again by announcing additional details on contracts with hyperscalers, amongst them Meta and Amazon’s AWS, benefiting the creditworthiness disproportionately compared with the equity.”
“Based on history, a year that has seen positive double-digit gains into the end of October tends to set up well for a Santa rally coming to fruition. Ho ho ho(pe), let’s see if this holds true this time around.”
After incurring losses of 9.0 percent in 2022 and 3.2 percent in 2023, Tidan Fund has turned a corner in 2024 with a 32.4 percent year-to-date gain through the end of October, including three record months out of the last four. Looking forward, Falken is hopeful for a “Santa rally” as the year concludes. “The economic and political landscape may get some clarity post the US election, and maybe that will deliver the longed-for Santa rally,” says Falken. “Based on history, a year that has seen positive double-digit gains into the end of October tends to set up well for a Santa rally coming to fruition. Ho ho ho(pe), let’s see if this holds true this time around.”
