Carmignac Portfolio Merger Arbitrage

A rather quiet end to the year for the Merger Arbitrage strategy, with no major events in December.

The HFRX Merger Arbitrage index remained virtually stable over the month, ending the year down -1.84%.

It is worth noting the strategy's good decorrelation during December in relation to the equity market, with the S&P 500 down -2.4%, and the credit market, with the US IG index down -2.6%.

There was some good news on the antitrust front: Catalent finally closed before the end of the year, rumors of the DoJ blocking Juniper have gradually faded, and Chinese press reports seem to indicate that the approval process for the acquisition of Shinko Electric Industries is well underway.

After several weeks of waiting, a US federal judge finally decided to block the Albertsons/Kroger deal. Anticipated by the markets, this decision had no significant impact on Albertsons' share price.

Measured in terms of the number of transactions, M&A activity remained buoyant in December, with 34 deals announced worldwide, up 21% versus the previous month.

Of particular note was the announcement of only 1 deal in excess of $10 billion: the merger in the US advertising sector between Interpublic and Omnicom.

As in the previous month, financial players accounted for more than a third of announced deals.

The fund posted a positive performance for the month.

Main positive contributors to performance were: Shinko Electric Industries Catalent, and Hess.

Main negative contributors to performance were: Enstar Group, Albertsons and Arcadium Lithium.

The fund's investment rate 41%, down on the previous month.

With 38 positions in the portfolio, diversification remains satisfactory.

2024 was a very complicated year for Merger Arbitrage: strong antitrust pressure, particularly in the US, with some deals blocked (Capri, Albertsons) and others under increased scrutiny (Hess, Pioneer Natural Resources, Catalent or Juniper).

We therefore witnessed a recovery in M&A activity that was not as strong as expected, due to increased scrutiny by the competition authorities, and highly volatile transactions (DS Smith, United States Steel, China Traditional Chinese Medicine) that led to the unwinding and closure of several Merger Arbitrage portfolios within the largest investment platforms.

The outlook for 2025 is much brighter, thanks to a more favorable antitrust environment for M&A activity worldwide.

The change of 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, the regulator in the UK pushed by the political class to prioritize economic activity and a Japanese market that continues to open up to foreign capital.

Lower interest rates are also likely to drive M&A activity in the quarters ahead.