Key Takeaways
- • Michael Kao founded Akanthos in 2002 as a capital structure long/short hedge fund with an event-driven bias, with 45% of AUM representing his own capital commitment.
- • Kao's investment philosophy combines credit, equity, and volatility strategies through a hybrid approach outlined in his white paper "Alpha with Asymmetry," which integrates long gamma from convertibles and capital structure arbitrage with event-driven catalysts.
- • Prior to founding Akanthos, Kao spent five years (1997–2002) managing the arbitrage group at Canyon Capital Advisors, where he pioneered hybrid strategies combining distressed bank debt, high-yield bonds, and convertible bonds hedged with option strategies.
- • Akanthos targets thematically diversified portfolios with asymmetric right skew, using tail hedges and idiosyncratic trades to achieve significant outperformance relative to equity indices with lower correlation.
- • The fund employs a case-study methodology, using historical precedents such as the Cy Lewis trade of the 1940s and contemporary examples like El Paso to refine and replicate successful capital structure arbitrage approaches.
Summary
Michael Kao has built a two-decade career architecting multi-asset investment strategies across credit, equity, and derivatives markets. Since 1992, Kao has developed expertise spanning convertible arbitrage, capital structure strategies, and event-driven investing. His work at Canyon Capital Advisors from 1997 to 2002 established his reputation for designing hybrid strategies that combined long positions in distressed bank debt, high-yield bonds, and convertible securities, paired with hedges constructed through option strategies to manage downside risk and capture volatility asymmetry.
In 2002, Kao founded Akanthos Capital Management as a capital structure long/short hedge fund with an explicit event-driven bias. The fund's strategy is grounded in Kao's proprietary framework detailed in his white paper "Alpha with Asymmetry," which merges three distinct investment dimensions: long gamma exposure from convertible and capital structure arbitrage positions, coupled with the catalyst identification methodology characteristic of event-driven investing. This approach is designed to generate returns through thematic diversification while maintaining asymmetric payoff profiles tilted toward positive outcomes. Kao's personal commitment to the fund is substantial—45% of Akanthos' assets under management represent his own capital, aligning his interests directly with investor returns.
Akanthos targets portfolio construction that deliberately weights credit, equity, and volatility across multiple positions to achieve both absolute return generation and reduced correlation relative to traditional equity indices. The fund employs tail hedges and opportunistic idiosyncratic trades to manage tail risk while positioning for significant outperformance. Trade examples such as El Paso demonstrate the fund's willingness to construct complex multi-leg positions across the capital structure. Kao's analytical framework extends to historical precedent—specifically the Cy Lewis trade from the 1940s—as a foundational case study for understanding how to extract sustainable alpha from capital structure dislocations and event catalysts, suggesting that institutional investor base expansion and evolving market conditions present opportunities to replicate time-tested arbitrage methodologies within contemporary market contexts.
In 2002, Kao founded Akanthos Capital Management as a capital structure long/short hedge fund with an explicit event-driven bias. The fund's strategy is grounded in Kao's proprietary framework detailed in his white paper "Alpha with Asymmetry," which merges three distinct investment dimensions: long gamma exposure from convertible and capital structure arbitrage positions, coupled with the catalyst identification methodology characteristic of event-driven investing. This approach is designed to generate returns through thematic diversification while maintaining asymmetric payoff profiles tilted toward positive outcomes. Kao's personal commitment to the fund is substantial—45% of Akanthos' assets under management represent his own capital, aligning his interests directly with investor returns.
Akanthos targets portfolio construction that deliberately weights credit, equity, and volatility across multiple positions to achieve both absolute return generation and reduced correlation relative to traditional equity indices. The fund employs tail hedges and opportunistic idiosyncratic trades to manage tail risk while positioning for significant outperformance. Trade examples such as El Paso demonstrate the fund's willingness to construct complex multi-leg positions across the capital structure. Kao's analytical framework extends to historical precedent—specifically the Cy Lewis trade from the 1940s—as a foundational case study for understanding how to extract sustainable alpha from capital structure dislocations and event catalysts, suggesting that institutional investor base expansion and evolving market conditions present opportunities to replicate time-tested arbitrage methodologies within contemporary market contexts.
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