LONDON (Reuters) - Edoma Partners, the hedge fund run by ex-Goldman Sachs (GS.N) star Pierre-Henri Flamand, has lagged behind rivals this year after a “frustrating” period when it missed out on a rally in stock and bond markets, a letter to its investors showed.
The $1.8 billion Edoma fund, founded by Flamand to make bets on corporate events like mergers, bankruptcies and restructurings, was down 0.85 percent at the end of the first quarter, bringing its losses since inception to 3.1 percent, according to the letter obtained by Reuters.
Flamand, formerly one of Goldman’s most senior proprietary traders, started London-based Edoma in November 2010 in one of the most eagerly awaited launches since the financial crisis.
A recovery in dealmaking has helped event-driven funds this year, with the average fund in the sector up 4.84 percent during the first quarter, data from Hedge Fund Research shows.
Flamand said the first quarter was dominated by momentum-driven trading after the European Central Bank pumped the system with one billion euros of cheap cash, making value investing hard for his Global Event Driven Master Fund outside of the United States.
“It is important to realize the high likelihood of this trend continuing, and to focus on the few stocks in Europe and elsewhere that have the requisite global growth and liquidity characteristics that asset allocators are favoring right now,” he wrote.
“This is a key theme for the portfolio which we intend to reflect most strongly in pre-event names.”
Flamand said he would now focus on a more concentrated portfolio of 30 to 40 positions from the 62 held in March.
Flamand said in the letter commodity market volatility hit its key mining position, while Edoma made money on European and U.S. financial trades and a restructuring play in International Airlines Group (ICAG.L), the British Airways parent group.
The fund’s net exposure - a measure of the difference between the fund’s long and short positions - stood at close to 20, with the largest positions in European basic materials, U.S. energy and European consumer non-cyclical names.
Flamand said the fund was positioned for more deals in the coming months. The fund held more than 40 percent of its gross exposure in the “pre-event” bucket, which makes speculative bets on deals before they are announced.
In the event book, the firm recently opened a position in Avon Products (AVP.N) after Coty made an opportunistic bid for the cosmetics company, the letter said.
Flamand also said he expected the default rate for leveraged loans to remain low at 3 to 4 percent in 2012.
“The key driver of this low default rate is extremely low interest rates, good liquidity profiles and minimal debt amortization requirements across the market in 2012. This should be an environment that is attractive for long risk in credit in Europe,” he said.
Edoma employs 26 people, 14 of them investment professionals, after Louis Villa and Marc Chatin recently left, it said in the letter.
The firm declined to comment.
Editing by David Cowell