Carmignac Merger Arbitrage: Letter from the Portfolio Managers
Dear investors,
After a rather difficult year for the Merger Arbitrage asset class, we nevertheless managed to preserve our investors' capital. The performance of our funds was positive, with an increase of +3.79% for Carmignac Portfolio Merger Arbitrage (I EUR Acc shareclass) and +3.68% for Carmignac Portfolio Merger Arbitrage Plus (I EUR Acc shareclass).
Market environment
The fourth quarter was marked by a series of events characteristic of the year 2024 :
- Two emblematic transactions (Capri and Albertsons) were blocked by the US courts.
- Deals came under increased scrutiny from competition authorities (Catalent, Shinko Electric Industries and Juniper).
- Failure of a deal in Asia (China Traditional Chinese Medicine) largely played by arbitrageurs, resulting in a 45% fall in the target's share price.
- Uncertainty over certain discounts (United States Steel) and technical volatility over others (DS Smith).
All in all, there was widespread tension across all Merger Arbitrage (M&A) spreads, which are usually fairly stable at the end of the year. This increase in volatility was exacerbated by the unwinding and closure of several M&A portfolios within the largest multi-strategy investment platforms.
In terms of M&A activity in the final quarter of 2024, there was a slight decline of 1%1 in volume and 9%1 in value worldwide compared with the previous quarter1. This drop in activity is not unusual in the run-up to the US elections. The rebound in M&A activity in Europe was particularly impressive, with growth of 60%* in value terms compared with the previous quarter1. Significant deals included the acquisition of Covestro in Germany for $16bn and Unicredit's hostile bid for its competitor Banco BPM for $11bn.
Performance Review
This particularly difficult environment obviously had an impact on the performance of M&A funds. The HFRX Merger Arbitrage index fell by 0.93% over the last quarter1.
However, we fared well, posting a positive performance of +0.89% over the same period.
This good performance can be explained by :
- Strict application of our investment process prompted us not to participate in the preliminary offer for China Traditional Chinese Medicine.
- Rigorous portfolio construction, with each position weighted according to its potential loss in the event of failure. We were indeed present in Capri and Albertsons, but the negative impact of these failures was more than offset by the portfolio's gains elsewhere.
- A traditionally cautious approach to transactions with too high a political risk. For example, we stayed away from the United States Steels deal.
- A fundamental approach to the issues, which enabled us to keep discounts under pressure, such as Catalent (closed in December), Juniper and Shinko Electric Industries (still in progress).
Outlook for 2025?
We believe that the outlook for 2025 is much brighter, thanks to a more favourable antitrust environment for M&A activity worldwide:
- In the US, following the election of Trump, the administration is due to be renewed, which should result in a reset of antitrust policy in certain economic sectors.
- In Europe, a change of doctrine with the publication of the Draghi report recommending the emergence of national champions to face up to global competition.
- In the United Kingdom, the new government is encouraging the competition authority to take greater account of economic considerations in their decisions.
- In Japan, capital markets continue to be opened up to foreign investors.
Lower interest rates are also likely to drive M&A activity in the quarters ahead.
In these conditions, the M&A cycle that began at the end of 2023 should continue to gain momentum. As a result, we expect to be able to deploy more capital in M&A, while keeping risks under control through good fund diversification.
Merger Arbitrage Team
Performance
| Carmignac Portfolio Merger Arbitrage | 2.7 | 3.8 |
| Carmignac Portfolio Merger Arbitrage | + 3.8 % | - | + 3.8 % |
Source: Carmignac at 31 Dec 2024.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).
Fees
- Entry costs
- We do not charge an entry fee.
- Exit costs
- We do not charge an exit fee for this product.
- Management fees and other administrative or operating costs
- 0,62% of the value of your investment per year. This estimate is based on actual costs over the past year.
- Performance fees
- 20,00% when the share class overperforms the Reference indicator during the performance period. It will be payable also in case the share class has overperformed the reference indicator but had a negative performance. Underperformance is clawed back for 5 years. The actual amount will vary depending on how well your investment performs. The aggregated cost estimation above includes the average over the last 5 years, or since the product creation if it is less than 5 years.
- Transaction Cost
- 0,30% of the value of your investment per year. This is an estimate of the costs incurred when we buy and sell the investments underlying the product. The actual amount varies depending on the quantity we buy and sell.
Performance
| Carmignac Portfolio Merger Arbitrage | 2.7 | 3.8 |
| Carmignac Portfolio Merger Arbitrage | + 3.8 % | - | + 3.8 % |
Source: Carmignac at 31 Dec 2024.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).
Carmignac Portfolio Merger Arbitrage Plus I EUR Acc
- Recommended minimum investment horizon
- 3 years
- Risk indicator*
- 2/7
- SFDR - Fund Classification**
- Article 8
*Risk Scale from the KID (Key Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time. **The Sustainable Finance Disclosure Regulation (SFDR) 2019/2088 is a European regulation that requires asset managers to classify their funds as either 'Article 8' funds, which promote environmental and social characteristics, 'Article 9' funds, which make sustainable investments with measurable objectives, or 'Article 6' funds, which do not necessarily have a sustainability objective. For more information please refer to https://eur-lex.europa.eu/eli/reg/2019/2088/oj.
Main risks of the fund
Fees
- Entry costs
- We do not charge an entry fee.
- Exit costs
- We do not charge an exit fee for this product.
- Management fees and other administrative or operating costs
- 1,11% of the value of your investment per year. This estimate is based on actual costs over the past year.
- Performance fees
- 20,00% max. of the outperformance if the performance is positive and the net asset value exceeds the high-water mark. The actual amount will vary depending on how well your investment performs. The aggregated cost estimation above includes the average over the last 5 years, or since the product creation if it is less than 5 years.
- Transaction Cost
- 0,84% of the value of your investment per year. This is an estimate of the costs incurred when we buy and sell the investments underlying the product. The actual amount varies depending on the quantity we buy and sell.
Performance
| Carmignac Portfolio Merger Arbitrage Plus | 3.2 | 3.7 |
| Carmignac Portfolio Merger Arbitrage Plus | + 3.7 % | - | + 4.0 % |
Source: Carmignac at 31 Dec 2024.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor).
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Marketing communication. Please refer to the KID/KIID, prospectus of the fund before making any final investment decisions. This document is intended for professional clients.
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