Return of the arbs: Activists target struggling hedge funds

Arbitrageurs have renewed their attacks on the beleaguered hedge fund investment trust sector after discounts widened, putting a number of vehicles in danger of closure by the end of the year.

While the investment trust sector had a bumper year in 2013, raising a record £7.4bn in IPOs, the hedge fund sector trailed far behind, raising just £1.6m. Discounts have remained large, attracting the attention of arbitrage investors looking to wind up poorly-performing funds and collect the net asset value of their investments. In particular, arbitrageurs are exploiting a loophole allowing investors to buy into hedge funds' more liquid sterling share classes, before converting into a smaller dollar or euro share class and forcing a wind down or payout at NAV. Activists have alrea...