Citywire Selector - For Professional Investors

Register to get unlimited access to Citywire’s fund manager database. Registration is free and only takes a minute.

Merger arb specialist: the downside of AM consolidation

Merger arb specialist: the downside of AM consolidation

The wave of consolidation in the asset management is less attractive for merger arbitrage specialists due to the mergers often being done on equal terms, according to TIG Advisors’ Drew Figdor.

Figdor, who runs the Lyxor/Tiedemann Arbitrage Strategy, said asset management transactions are viewed like any other corporate change but have one notable drawback.

‘MOEs have less opportunity for us as, even if they fall apart, the lack of premium to either side means it is hard to monetise the event. We focus on complexity in merger transactions and the ability to extract alpha out of this complexity with research.

'However, this wave of M&A in the industry could mean that hedge funds over time can and should consolidate, as it is fairly inefficient to run thousands of sub-$1 billion hedge funds given the scale necessary.'

Figdor said the other unique feature of asset management transactions is that assets ‘walk out of the door’ on a daily basis.

'This makes competitive bid situations difficult to occur since potential interlopers cannot be confident they will be able to retain the key people, and thus risk destroying value with the deal.

'When performance declines or a merger causes uncertainty among clients, redemptions can become a vicious cycle as clients see redemptions and in turn, want to redeem.

'If that moves quickly enough, it increases MAC (a clause to protect the acquirer to from adverse changes between signing and closing a deal) risk/price renegotiation risk in a merger deal.'

Figdor said mergers in the asset management industry are unlikely to be part of the fund, but said there are always new opportunities arising in the market.

'For us, asset management deals are unlikely to be a focus for our fund given risks and lack of return opportunity that we have seen. If there is a competitive bid situation we would be interested, though that has yet to be seen.'

Over the three years to the end of March, the Lyxor/Tiedemann Arbitrage Strategy returned 2.8% in euro terms in the event-driven category. This compares with a loss of 1.7% sector by the average manager, over the same time period.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Events
  • Citywire Alternative Ucits Retreat 2017

    Citywire Alternative Ucits Retreat 2017

  • Citywire Milan 2017

    Citywire Milan 2017

  • Citywire Paris 2017

    Citywire Paris 2017

  • Citywire Deutschland 2017

    Citywire Deutschland 2017

  • Citywire DACH 2016

    Citywire DACH 2016

  • Citywire Italy 2016

    Citywire Italy 2016

  • Citywire Milan 2016

    Citywire Milan 2016

  • Citywire Alt Ucits 2016

    Citywire Alt Ucits 2016

  • Citywire Berlin 2016

    Citywire Berlin 2016

  • Citywire Switzerland 2016

    Citywire Switzerland 2016

  • Citywire Amsterdam 2016

    Citywire Amsterdam 2016

  • Citywire Montreux 2016

    Citywire Montreux 2016

  • Citywire Deutschland 2016

    Citywire Deutschland 2016

  • Citywire Latin America 2016

    Citywire Latin America 2016

  • Citywire Milan 2016

    Citywire Milan 2016

  • Citywire Munich 2016

    Citywire Munich 2016

  • Citywire Paris Alt Ucits 2016

    Citywire Paris Alt Ucits 2016

  • Citywire Zurich Alt Ucits 2016

    Citywire Zurich Alt Ucits 2016