Carmignac Portfolio Merger Arbitrage

In a complex market environment for most asset classes, the Merger Arb strategy demonstrated its resilience in March. Indeed, US stock indices recorded a decline of 5 to 10% at their lowest point, while the HFRX Merger Arbitrage index posted a slightly negative monthly performance of -0.17%.

Some spreads were more volatile than average: Discover Financial Services, still awaiting approval from the Fed and DOJ; Ansys, where geopolitical tensions between China and the US are complicating the approval process by Chinese competition authorities; and Despegar, under pressure following press articles reporting malpractices revealed by a former employee.

A dozen transactions were completed, contributing to the tightening of other spreads. Among them: Altair Engineering, Arcadium Lithium, Hargreaves Lansdown, and Pactiv Evergreen.

Despite uncertainties related to the tariff war launched by the Trump administration, M&A activity was relatively strong in March, with around twenty transactions announced for a total amount of nearly 100 billion euros.

Taking advantage of lower interest rates to deploy their capital more aggressively, Private Equity groups confirmed their return. They represented 30% of buyers in March. Notable transactions include two significant deals: one in the US with the acquisition of Walgreens Boots Alliance by Sycamore for 36 billion euros, and the other in Europe with the acquisition of Fortnox by EQT and First Kraft for nearly 4 billion euros.

The fund recorded a positive performance over the month.

The main contributors to performance were: Calibre Mining, Hess, and Intra-Cellular Therapies.

The main detractors from performance were: Discover Financial Services, Ansys, and Surmodics.

The fund's investment rate is 39%, up from the previous month.

With 51 positions in the portfolio, diversification remains satisfactory.

The year 2024 was particularly challenging for Merger Arbitrage: significant antitrust pressure, especially in the US, with blocked deals (Capri, Albertsons) and others under increased scrutiny (Hess, Pioneer Natural Resources, Catalent, Juniper). The expected rebound in M&A activity was not as strong due to this heightened regulatory oversight.

Additionally, highly volatile deals (DS Smith, United States Steel, China Traditional Chinese Medicine) led to the unwinding and closure of several Merger Arbitrage portfolios within major investment platforms.

The outlook for 2025 is much more promising, thanks to a more favourable antitrust environment for M&A activity globally: a change in administration in the US following Trump's election, the publication of the Draghi report in Europe recommending the emergence of national champions to face global competition, UK regulators being pushed by the political class to prioritize economic activity, and the Japanese market continuing to open up to foreign capital.

The decrease in interest rates is also expected to drive M&A activity in the coming quarters.