Hawk Opportunity Fund

about the fund

The Hawk Opportunity Fund (HOF) was created to take advantage of three distinct but synergistic areas: bankrupt securities, distressed debt and equity, and contrarian or contra-market investments. There are many subsets of these three strategies that allow HOF to target specific securities within the capital structure of a company or look for similar securities within an industry.

 

Bankruptcies

Generally there are two types of bankruptcies: insolvency, where the liabilities exceed the assets; and reorganizations, in which the company is usually overburdened with debt or business conditions changed and it can no longer meet its obligations. In many cases, these companies have a strong market niche or a viable business once the debt is restructured. Generally, the equity is worthless and the bondholders recover most of the asset value. HOF looks for reorganizations with the potential for large recoveries for bondholders.

 

Distressed Debt and Equity

Similarly, mature companies at various points in time may find that they are in financial difficulty. They may become cash strapped because of business conditions or because of failing to address an accumulation of mistakes by previous managements over the years. These companies tend to have been industry leaders or have been protected by barriers to entry and have squandered their position. HOF looks at these companies for hidden assets that need to be sold or a catalyst such as a restructuring of the company’s balance sheet. Historically, those have been the events that unlock value for their stock or bondholders.

 

Contrarian or Contra-Market Investments

HOF, by design, does not look at momentum or growth-type stocks. It is value driven. However, at various points along a business cycle, stocks or bonds in any industry can be sold down to levels below their intrinsic value. That is when we get interested. For every industry group that has gone parabolic, there is one industry group that is out of favor. We attempt to find those companies whose asset or break-up values are significantly higher than their current market price and that in a normalized environment would trade at a significant premium. This is what Graham and Dodd, the fathers of value investing, termed the “Margin of Safety.” HOF embraces that concept.

HOF believes the reverse is also true. From time to time the market will overvalue securities, both stocks and bonds, to the point that they trade at significant premiums to their intrinsic value. In those cases, HOF would look to establish a short position to take advantage of the excess valuation.

HOF may, from time to time, use alternate hedging strategies in each of these three groups. We may, from time to time, short one bond or stock against another within the capital structure of our target company or within the industry.

Finally, HOF looks for private investments in the public securities of those companies that meet any of the above criteria. We will also look to achieve our objectives by purchasing private debt or equity in non-public companies.