According to Walsh, the debt side is often the most promising part of an M&A trade. “While on the equity side you can lose a lot of money if a deal breaks, your downside is limited on the debt side. On the other hand, there is a lot of upside if a better-rated company buys the company you are invested in. Add three or four times leverage and you can make a lot of money.”
Walsh runs two alternative fund-of-funds, an offshore one and a Ucits vehicle. “By now the offshore f-o-f is about six times the size of the Ucits one, because Ucits is simply handicapping a manager.” The fortunes of the PSAM WorldArb Fund, which is the original offshore version of the aforementioned Global Event fund, proves Walsh has a point. While the Ucits version lost money in 2015, its offshore equivalent made a return of more than 9% (before costs) in the 12 months to the end of November 2015.
Just keep it simple
However, Ucits M&A funds are not always a bad option. Thomas Romig manages the Assenagon Multi Asset Wertsicherung fund and has 5% of its total capital allocated to the Syquant Capital Helium Opportunities fund, an equity arbitrage strategy in Ucits format. “I have been investing in this fund for more than four years. It’s a defensive strategy, which only trades in announced deals and uses little leverage,” he explains.
The fund has an exceptional risk-return performance with volatility of just 1.04% in 2015 and an average annualised return of approximately 4% over the past six years. So if they keep things simple, M&A strategies in Ucits format can also deliver satisfactory results.