Hedge funds seek to profit from the rise of trade deals

Hedge funds that bet on deals with companies have rebounded from big losses during the market crisis caused by coronaviruses last spring and aim to profit from a surge in mergers and acquisitions as economies reopen.

Merger arbitrage funds gained 7.7% in the first four months of 2021, according to research firm HFR, after finishing last year up 5.2%. These types of funds typically buy stocks as part of a merger and acquisition deal and bet against the acquirer, making money when the deal closes.

The strong performance so far in 2021 marks a stark contrast to the start of last year, when merger arbitrage funds were left reeling in March in a so-called “Arb-ageddon” in which many deals threatened to collapse at the height of the market turmoil linked to the pandemic. Funds lost an average of 9.6% in March 2020 alone, according to HFR. As spreads – the spread between the deal price and the current share price – widened, many managers were forced to reduce their positions, resulting in further losses.

However, those who stuck to their bets took advantage of a rebound over the past year, helped by tightening spreads, a rally in cheap and battered stocks in recent months and the exit of some traders from the sector following the uproar of last spring.

The latest fund firm trying to capitalize on the renewed appetite for corporate deals is London-based investment firm Trium Capital. He hired fund manager Felix Lo and analyst Neo Tsangarides, who previously worked together at Izzy Englander’s Millennium Management, to launch the Trium Khartes Event Driven fund.

The company plans to raise $ 200 million for the fund at launch, based on investor commitments, including a double-digit $ 1 million start-up investment by Trium. Trium’s Credere fund, which focuses on a betting strategy on the relationship between convertible bonds and stocks, is up 2% this year, after gaining 12% in 2020.

“We feel that we are at the start of a really fertile period for the merger. [arbitrage]Said Donald Pepper, co-director of Trium and former banker of Goldman Sachs. “Animal spirits are returning to corporate boards, deal sizes are increasing, and there isn’t as much money for merger arbitration.”

The first quarter of 2021 has been the best start a year for mergers and acquisitions activities since at least 1980.

Offers such as Aon purchase by Willis Towers Watson, the bidding war for Crown Resorts in Australia and the battle for the Kansas City Southern Railway Company are among those that offer a multitude of potential opportunities to traders in this area.

Lyxor Asset Management recently stated that hedge funds trading corporate events “remain one of the [strategies] in the hedge fund space ”. Aberdeen Standard is also optimistic, noting that “there is a favorable environment for business activity in 2021 which should provide managers with numerous investment opportunities.”

Lo previously worked at Sandell Asset Management – where he headed $ 1.4 billion – hedge fund LMR, and most recently at Millennium, where his team managed $ 500 million in assets.

Some of the funds making money this year include Jamie Sherman’s Kite Lake Event Driven Fund, which is up 7.5%, Paul Glazer’s $ 1.4 billion Glazer Enhanced, up 8%. , 6%, Melqart by Michel Massoud, which gained 14.8%, and $ 840 million. in Berry Street Capital assets, which made 6 percent.


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