Overview
The Tycho Zazove Convertible Arbitrage Fund seeks to deliver cash +4–5% with bond-like volatility. To achieve this objective the sub-investment manager, Zazove Associates, employs a dynamic approach to Convertible Arbitrage with three core return drivers: Carry, Volatility Capture/Gamma Trading, and Tactical Opportunities, complemented by a structural tail hedge and dynamic credit overlay.
Strategy & Manager
Fund Strategy
The strategy is a market-neutral investment approach that seeks to exploit pricing inefficiencies between a company’s convertible securities and its underlying equity. There are three core sub strategies employed within the fund:
- Carry: Harvesting coupon income from long exposure to convertible bonds combined with short-rebates from equity hedge and option premium from systematic overwriting.
- Volatility Capture/Gamma Trading: Seeking to capture convexity from stock volatility.
- Tactical Opportunities: Participate in attractive primary-market issuance and refinancing combined with relative-value and flow-driven trading.
The strategy will also employ a structural tail hedge by leveraging cheap Convertible Arbitrage volatility and structural bond floor to help fund equity market put ladders.
Key Persons
Bret Lannert - Portfolio Manager
Bret joined the firm in 2021 as a Portfolio Manager supporting the firm’s core balanced convertible strategy as well as the convertible arbitrage strategy. Bret has over 17 years of experience executing complex investment strategies including interest rate derivative trading. Bret previously co-founded and served as the Managing Partner of a proprietary trading group specializing in quantitative volatility strategies. More recently, Bret worked as a product specialist developing advanced analytics for an enterprise software application for Asset Managers. Bret received a B.A.Sc. in Aviation Management from Southern Illinois University and his MBA from the University of Illinois.
Gene T. Pretti - Chief Executive Officer & Chief Investment Officer
Gene serves as Partner, Chief Executive Officer & Chief Investment Officer. Prior to joining Zazove Associates in 1989, Gene worked for First Boston Corporation where he specialized in institutional equity sales. He also has served as an analyst with CUNA Mutual Insurance Co. and Robert W. Baird & Co. He earned his MBA from the University of Wisconsin where he was selected for the Applied Program, an honors program emphasizing Security Analysis and Portfolio Management.
Performance
Class Performance
Commentary
Investment Manager’s Commentary – September 2026
September represented an unusually challenging environment for convertible arbitrage as three important valuation inputs moved adversely at the same time. Interest rates rose, credit spreads widened, and volatility declined. While each of these factors periodically creates headwinds for convertible valuations, it is relatively unusual for all three to move against the asset class simultaneously. The monthly loss was driven by the impact of those changes in convertible valuations. Carry and active volatility capture were positive contributors during the month and helped offset a portion of these mark-to-market losses.
Despite the difficult performance environment, we believe September represented an important improvement in the opportunity set. We entered the third quarter with convertible valuations near the richest levels observed during the current cycle. By late September, however, we began to observe broader cheapening beyond what could be explained by those inputs alone. By quarter-end, convertible valuations had moved from cycle-rich levels to marginally cheap.
The primary market provided another indication that the supply-demand balance was beginning to shift. Global convertible issuance exceeded $66 billion during the third quarter, the largest third-quarter total on record, while year-to-date issuance surpassed $200 billion. Despite the volume of issuance, terms remained aggressive. We therefore participated selectively. New transactions traded down approximately half a point on average during their first day of trading, suggesting limited residual demand following issuance.
We largely maintained portfolio leverage throughout the third-quarter valuation reset. We believe that patience was appropriate: lower convertible prices do not necessarily represent better value when the fundamental inputs underlying those securities have deteriorated. That distinction has now begun to change.
Entering the fourth quarter, the opportunity set is meaningfully more attractive than it was three months ago. We believe the potential for further cheapening remains real and intend to preserve the ability to act quickly should additional dislocation develop. At the same time, we do not intend to pass on the opportunity to incorporate high-quality securities into the portfolio at today’s improved valuations. September’s simultaneous combination of higher rates, wider credit spreads and lower volatility was unusually adverse and tends to be transitory. While the resulting valuation adjustment negatively affected third-quarter performance, it has also begun to create the type of relative-value opportunities for which we have been patiently preserving capital.
Documents
Contact
Registered Office of the ICAV:
35 Shelbourne Road
4th Floor
Ballsbridge, Dublin
D04 A4E0
Ireland
Dealing Contact:
Tycho ICAV
Attention: TA Department
c/o Société Générale Securities Services
SGSS (Ireland) Limited
3rd Floor, IFSC House
IFSC
Dublin 1, Ireland
T: 00353 1 6750 300
F: 00353 1 6750 351
E: [email protected]
Tycho Contact
Georg Reutter
Partner
T: +44(0)20 3384 8794
E: [email protected]
JJ Jardine-Paterson
Head of Investment Solutions
T: +44 (0)20 3598 6445
E: [email protected]
