We are pleased to report a 2.50% net return for the Caravel Capital Fund Ltd Ltd. As we mentioned in our two most recent Partners letters, we anticipated the consummation of a large risk arbitrage position the fund held. The merger as predicted closed in late July, which resulted in the Fund recouping its previous two months of losses and ultimately netting a reasonable rate of return for the partners. The last two months may not have seemed to have materially impacted our partners’ returns, but the experience of giving back that kind of money to the markets did not sit lightly with us. Outside of the Merger arbitrage portfolio the fund generated a mix of gains and losses in both its relative value and convertible arbitrage portfolios that when combined caused a reduction in the overall net return for the month.
We intentionally kept the funds portfolio light during July as summer holidays for most of the investment community reduced the flow of opportunities. In the last week we have noted a pick up in activity in the market and have been working on redeploying the Fund’s capital into some fresh ideas, which we will highlight once the investments have been made. During the month we took the opportunity to exit a relative value position as both the macro and micro fundamentals of this holding had materially changed. We incurred a loss on this position in order to trade out of it in a timely manner; it currently is trading well below our exit price.
As a result of the net negative performance of 1.21% for the second quarter, there was no performance fee charged to the fund and subsequently no performance fees were reinvested. The return for the month of July has recouped the second quarter’s small loss and increased the net asset value of the fund to a new all time high (performance fees were only charged once these losses were recouped). We will continue to manage the current capital until we are satisfied we can maintain the annual returns at historic levels with a larger capital base. We will then reopen the fund to current partners and then if there is capacity, to new partners. Glen and I personally would like to increase our investments in the fund and are thus very motivated to find new lucrative opportunities. In the meantime, the returns on current assets under management ultimately increase the burden of reinvestment and thus compound the effort required. Rest assured these are welcome burdens for the staff at Caravel Capital.
We thank you for your confidence and capital.
Jeff & Glen
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