WASHINGTON, D.C. (HedgeWorld.com)–A startup investment manager, Pennsylvania Avenue Advisers LLC, is looking to create a hybrid of a hedge fund and a mutual fund with the Pennsylvania Avenue Event-Driven Fund.
As its name states, the fund will employ event-driven strategies: merger arbitrage, capital structure arbitrage, distressed investing and proxy fight investing. The fund adviser and the fund itself were founded by Thomas Kirchner, president and portfolio manager. Mr. Kirchner currently also is a financial engineer with FNMA.
The fund is the company’s first offering and currently has a small amount of seed capital, he said.
Mr. Kirchner said he launched the fund after deciding that event-driven strategies have become compatible with the mutual fund format. “I found these strategies are very reliable, very efficient,” yet there weren’t mutual funds focused on them.
“These strategies are pretty plain vanilla,” he said. There’s no need to pay the performance fee typically found in a hedge fund, he said. He added that performance fees in the hedge fund arena are muddying the whole investment process, giving managers too much incentive to pile on leverage or risk. A mutual fund doesn’t carry that problem.
Although there are existing merger arbitrage mutual funds, Mr. Kirchner said he wasn’t aware of anyone offering a full palate of event-driven strategies. “I figured there was a niche for someone to fill,” he said. Some of the merger arb funds in existence have proved popular. Water Island Capital LLC, New York, manager of the merger-and-risk-arb-focused Arbitrage Fund, plans to close it to new investors as of the end of this month Previous HedgeWorld Story.
Mr. Kirchner said another reason to offer event-driven strategies in a mutual fund is for the additional Securities and Exchange Commission oversight that comes with it.