As SPACs Explode So Go Merger Arbitrage Funds

November 16, 2020 James Heinsman In the News

Merger Arbitrage hedge funds have had a good year, according to Lyxor Asset Management’s Cross Asset Research management department. They say it’s because of the growth in the issuance of Special Purpose Acquisition Companies in the United States during 2020. SPACs are useful to investors strategizing merger arbitrage deals because of their low volatility return profiles.

“SPACs were strong positive contributors to Merger Arbitrage returns last month. They should allow robust M&A volumes in the quarters to come, with USD 50 billion of unleveraged capital available to make acquisitions,” according to the report.

Attractive deal spreads, larger M&A volumes in the US, and its power of diversification have all contributed to the recent success and growth of Merger Arbitrage.

The Lyxor report adds:
“This contributes to explain why the strategy was highly resilient in October (2020), despite the equity market plunge amid renewed lockdowns in Europe.”

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