The new fund is an innovative strategy that builds enhanced, long equity exposure using structural dislocations in single-stock options
Current market conditions pose significant uncertainty and challenges for investors
We believe that consistently investing in select companies with strong business models and balance sheets, during all periods of the business cycle, offers extraordinary opportunities for long-term equity investors. That said, the current level of risk and uncertainty hanging over capital markets is difficult to ignore.
The rapid spread of COVID-19 has been a major shock globally, resulting not only in an unprecedented health crisis, but also a significant commercial impact leaving many guessing as to what speed we will see an economic recovery. Meanwhile, various government and central bank stimulus packages have driven stock markets to recover aggressively from recent lows, leaving equities at extraordinary valuations relative to projected earnings. Today’s unique circumstances pose a significant challenge of risk management for equity investors.
The opportunity at hand
In volatile and uncertain market environments, we would expect the dispersion of future returns across the equity universe to widen dramatically. Many companies will fail while others will thrive. This anticipated dynamic highlights the need for active stock selection both as a means of identifying prospects for capital growth, but also to avoid investments where risk of capital loss is high.
For the same reasons, means of implementation and risk management are also critical features of a long-only equity portfolio, particularly in today’s market environment. Much like the dislocations that can be found in equity valuations, such is true for their respective derivative markets. These dislocations provide the opportunity to design and tailor enhanced risk-reward profiles for each underlying equity investment.
An innovative combination of stock-picking and options-based implementation
Combining these two investment pillars into a single strategy, Falcon is entering into a strategic partnership with a team of portfolio managers, formerly from JPMorgan and Samsung Asset Management to launch the new Equity Opportunities Fund. The investment team which combines years of experience in fundamental equity research and derivatives trading/risk management will seek to exploit dislocations in the listed options market as a means of building and complimenting positions in selected stocks.
The fund’s investment team includes Arman Salavitabar, CFA and Kaustubh Misra, MBA. The fund is aiming to launch at US$ 50mln and is available to a select number of LPs.