Thinking Outside the Style Box | The Hedge Fund Category Problem with Louis Camhi

Episode Summary

Executive Summary: Louis Cammy explains how RLH Capital was built around a misunderstood SPAC market niche: buying SPAC trust value for arbitrage, then expanding into warrants, sponsor economics, and bridge financing as the cycle evolved. He emphasizes education, disciplined fund operations, and adapting to market regimes while preserving the core domain expertise in SPACs.

Main Topics: Louis Cammy’s path from banking to launching RLH Capital (Priority: 5/5): He describes a traditional career arc through Credit Suisse, Three Corner Global, and Citadel, then leaving after realizing he preferred a different style of investing and saw a niche in SPACs. Why SPACs were attractive as a fund strategy (Priority: 5/5): Cammy argues that SPACs were widely misunderstood, that the real opportunity was in SPAC trust arbitrage rather than D-SPAC equities, and that the market was undercovered by fundamental investors. Market cycle, issuance, and size of the SPAC opportunity (Priority: 4/5): He discusses the post-bubble decline, current issuance recovery, total market size, and why serial sponsors returning suggests renewed opportunity, even if valuations are still not ideal. Fundraising challenges and investor education (Priority: 5/5): A major theme is the difficulty of raising capital for a niche strategy that many allocators do not understand, requiring repeated explanation of what the fund actually does and who it is for. Role of SMAs and commingled vehicles (Priority: 4/5): He explains why an SMA helped establish the business, how it compares to a commingled fund, and why both structures matter for scaling, control, and marketing the strategy. Operational infrastructure and the hidden work of running a fund (Priority: 4/5): Cammy details the outsourced admin, middle office, back office, tax, audit, and legal setup needed to run the firm and the operational complexity that new managers often underestimate. Strategy evolution within the same SPAC domain (Priority: 5/5): The fund began with SPAC arbitrage, then used call-writing, extension votes, sponsor economics, warrant arbitrage, and bridge financing, showing how the trade changes with the market cycle.

Key Arguments: SPACs are often confused with D-SPACs; the true arbitrage opportunity is in pre-deal SPAC trust securities, not necessarily the post-merger equities. A fundamental investing background is valuable in SPACs because it can identify quality deals and underwritten opportunities that purely arb or event-driven players may miss. Launching where there is less competition can be easier than entering crowded sectors like fintech, even if the product is more misunderstood. The fund’s core thesis is a portfolio dominated by low-volatility SPAC arbitrage with a smaller sleeve of higher-upside opportunities. SPAC investing is cyclical: when issuance and deal quality improve, the strategy can expand; when not, the opportunity shifts to financing, warrants, and other structures. Raising capital for a niche fund is mostly an education process, not a marketing process; investors need to understand the strategy before they can allocate. SMA relationships can help establish a track record and scale, but they do not replace the need for a commingled fund because commingled capital gives the manager more control. Operational readiness matters as much as investment skill; even a small fund needs admin, middle office, audit, legal, and reconciliation processes from day one. As the SPAC market changes, the fund can adapt without abandoning its core domain expertise, which Cammy distinguishes from style drift. LPs increasingly want access to higher-octane financing opportunities, which has led RLH to consider a new SPV product for riskier SPAC-related trades.

Data Points: RLH Capital anniversary: 3 years - Cammy says the firm recently completed its three-year anniversary after launching in October 2021. Launch date: October 2021 - He says RLH Capital was launched in October 2021, after his leave from Citadel and garden leave. Time left Citadel: Labor Day 2020 - Cammy states he left Citadel on Labor Day 2020 before eventually launching the fund. Estimated SPAC market capital: ~$20 billion - He estimates current SPAC capital outstanding is about $20 billion, down from over $100 billion at the peak. SPAC market peak capital: Over $100 billion - Cammy compares the current market size to the SPAC bubble peak. Recent issuance: $6–7 billion - He says about $6 to $7 billion of SPAC issuance has occurred in the last few months alone. Current deployed capital: ~$100 million - Cammy says the fund has around $100 million deployed across the commingled vehicle and SMAs. Initial launch capital goal: $5 million - He says he had $5 million in mind as the starting point for proof of concept. Target return on treasury-arbitrage sleeve: High single digits to low double digits - He describes the original SPAC trust-arbitrage thesis as yielding high single-digit to low-double-digit returns, backed by treasuries. Core portfolio mix: 80%–90% arbitrage / 10%–20% higher risk-reward - He describes the original idea as primarily low-risk SPAC arbitrage with a smaller sleeve of high-upside trades. Average D-SPAC trading level: Around $4 - Cammy says D-SPACs are trading around four dollars on average. Expected commingled-scale benchmark: ~5% of market - He references the common answer that a fund could potentially scale to about 5% of the opportunity set. SPAC duration: 2 years - He notes SPACs usually have a two-year duration when comparing yields to investment-grade credit. Option example return: ~1% in a month - He describes a call-writing trade where a one-month call on a SPAC could generate about 1% in a month. Investor minimum example: $5 million minimum; max 20% of fund - He cites a common allocator rule that can make it difficult to take small checks if the fund is too small.

Pivotal Quotes: "If you go to where the food is and no one's hunting, it's a lot easier to win." — Louis Cammy: He explains why he chose to focus on SPACs rather than the crowded fintech analyst landscape. "People think SPACs as these equities of underperformed. Like, no, that's a D-SPAC." — Louis Cammy: He clarifies the key misconception between SPAC trust securities and post-merger D-SPAC equities. "I always said with SPACs, there always is a trade, and what that trade is always evolves over time." — Louis Cammy: He summarizes his philosophy that the strategy must adapt as market cycles and structures change.

Implications: The episode shows that niche funds can win through specialization, education, and flexible product design. For LPs, the lesson is to understand the exact instrument and cycle before allocating; for managers, operational rigor and clear messaging are as important as alpha.