The Fund delivered a positive return.
The main contributors were: Pioneer Natural Resources, SP Plus and MorphoSys
The main hindrances were: Hess, Ansys and Cerevel Therapeutics
We had no position on the DS Smith spread when rumours emerged about an offer for its potential buyer. Shortly after, though, we opened a small position when the risk-reward profile looked interesting.
The Fund’s investment rate increased from 98% to 100% given the large number of deals closed in May.
With 42 positions in the portfolio, diversification remains satisfactory.
2024 should see the M&A cycle pick up due to the stabilisation (or even reduction) in interest rates, the energy transition spreading to more sectors of the economy, private equity funds making a return, and Japanese stock markets undergoing regulatory change.
The risk premium on the Merger Arbitrage strategy still offers investors some attractive returns, especially at a time when few deals are collapsing.
North America | 33.7 % |
Other countries | 16.9 % |
Europe ex-EUR | 16.2 % |
Europe EUR | -0.3 % |
Total % of alternative | 66.5 % |
Market environment
May was a difficult month for the strategy, with the HFRX Merger Arbitrage index down 0.8%.
This was partly due to the increase in the DS Smith spread amid rumours of an offer for its potential buyer, International Paper, from Brazil’s Suzano.
Other spreads also rose in May, though without anything specific to point out: Hess, Ansys and Cerevel Therapeutics
A few major deals were completed: Pioneer Natural Resources, SP Plus and MorphoSys
It seems the resources freed up are being reallocated to some recently announced smaller deals, on which spread are fairly small.
M&A activity is holding up well with 30 new deals announced in May for a total of $114bn. Most of this growth is coming from Europe and Asia.
Private Equity funds account for nearly half of all bidders in deals announced during the month.