TWST: Would you begin with an overview of Pennsylvania Avenue Advisers?
Mr. Kirchner: We manage the Pennsylvania Avenue Event-Driven Fund, which
is a mutual fund that uses various event-driven strategies: primarily
merger arbitrage, distressed securities and piggybacking on proxy
fights.
TWST: Would you tell us about the funds that you have working for you
now?
Mr. Kirchner: We have just this one Fund, which we started about two and
a half years ago. It is still very small; it has about $1.5 million in
assets. It should get a ticker later this year or early next year, and
so far it's been only available on a small number of platforms. So that
is certainly one of the reasons why it has not grown faster and not as
fast as we would have hoped.
TWST: Would you give us a brief description of your three alternative
investment methods and then go on to tell us why you are choosing them?
Mr. Kirchner: I will start off with merger arbitrage because that's what
we do the most. We've got probably anywhere from 50% to 80% of the Fund
in that strategy. The idea here is that when one company buys another,
the stock price of the target does not immediately go to the buyout
price, but for a while will trade at a discount, and there are various
reasons why it's trading at the discount to the buyout price. One is the
risk that the deal may not go through. The other risk is that usually
the companies get bought at big premiums, so a lot of investors want to
sell the stocks at that point and you have got a supply and demand
imbalance. And if that discount is large enough and the time period
short enough, the annualized return can be very high. So we specialize
in buying these stocks at a discount and just holding them until the
merger is completed. That involves essentially finding out what the risk
is of the deal not going through, because if it does not go through, you
have a big downside that is disproportionately bigger than what you make
if the deal does go through. The good news is that the vast majority of
deals do happen, and if you are very careful and you can eliminate those
that do not happen, then on average you are going to have a very high
return.
Tickers included in this excerpt: MEE
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