Amit Shabi, Bernheim Dreyfus: “The failure of the AT&T/T-Mobile deal has led to a repricing of antitrust risk that we believe is exaggerated”
Amit Shabi (pictured), chief executive of Paris-based event-driven and merger arbitrage specialist Bernheim, Dreyfus & Co, says the firm’s Diva Synergy fund and its recently-launched Ucits version is poised to capitalise on an expected pick-up in European M&A volumes, which should create more lucrative investment opportunities and better performance.
GFM: What is the history and background of your company, principals and funds?
AS: Bernheim, Dreyfus & Co is an asset management firm authorised and regulated by France’s Autorité des Marchés Financiers. The firm’s key principals are chief operations officer Sébastien Dettmar, chief investment officer Lionel Melka and myself as chief executive.
Before launching the firm, Lionel spent 10 years in investment banking with Lazard, Calyon and Rothschild, where he undertook numerous M&A advisory engagements for blue-chip clients involving situations such as privatisations, friendly and hostile takeover bids, leveraged buyouts, asset disposals and initial public offerings. He also teaches corporate finance at the University of Paris-Dauphine.
I worked for 10 years in capital markets before founding Bernheim Dreyfus, starting my career at LCF Rothschild Asset Management before joining Man Group and then Cantor Fitzgerald, selling derivatives and structured products to sophisticated investors.
Sébastien spent 10 years at LCF Rothschild Asset Management as a risk manager overseeing EUR15bn in assets under management. There he established the strategic direction, risk tolerance standards, and ethical culture for asset management activities.
Bernheim Dreyfus manages an event-driven merger arbitrage fund, Diva Synergy (BVI), domiciled in the British Virgin Islands and launched in November 2006. Our goal is to close the fund once we reach capacity of USD1bn.
The company also manages a French-domiciled Ucits fund launched in June 2011 replicating the event-driven merger arbitrage strategy and correlated managed accounts following the same strategy, as well as non-correlated managed accounts for selected investors.
GFM: Who are your main service providers?
AS: Our prime brokers are Newedge and Bank of America Merrill Lynch, our custodian is RBC Dexia, our legal advisor is Weil, Gotshal & Manges, and our auditor is KPMG.
GFM: What is your distribution strategy and targeted client base?
AS: The offshore fund targets funds of funds, institutional investors and pension funds, while the Ucits version targets high net worth individuals, family offices and private banks.
GFM: What impact has the recent global financial crisis and economic downturn had on your business?
AS: During the crisis, volatility surged, which led us to increase our exposure to merger arbitrage (announced deals) and decrease our exposure to special situations (expected deals).
GFM: Please describe your investment process.
AS: The first step is identification of a mispricing or investment opportunity. Based on our internal research and analysis process, involving fundamental and quantitative analysis, we identify the existence of a security’s mispricing that may be arbitraged, or of an investment opportunity per se.
The second step is to explain the causes of the mispricing. We seek to understand the specific risks of the investment and the drivers of the convergence toward or divergence from fair value by determining the causes of the perceived mispricing.
The third step is to identify a catalyst for the convergence of the security’s price toward its fair value. In the absence of such a trigger, we may consider the trade as a value investment opportunity with a significant fundamentals-backed valuation upside potential.
The final step comprises identification of potential scenarios and assignment of probabilities to them, in which we assess the idiosyncratic risks associated with an investment opportunity. During this step, the firm’s investment committee aims to quantify the risk-reward balance and minimise any emotional bias. This step also helps to quantify risks that are not captured by traditional risk systems, such as liquidity risk.
GFM: What is your approach to managing risk?
AS: Position sizing is determined by liquidity, the downside risk and the ability to hedge undesired risks. We aim to avoid crowded trades. We systematically cover all risks, including currency and interest rates, other than those inherent to the strategy, mainly the non-occurrence of an anticipated event.
For internal risk monitoring, the team has real-time access to exposures by sub-strategy, geography, currency and other exogenous or macro factors that are often difficult to predict. Crowded, illiquid or high-risk trades, where these exist, are segregated and monitored very closely.
We have a strict stop-loss policy. The risk manager frequently runs stress scenarios on the portfolio and its sub-books, and also ensures that our strict guidelines are respected. Monthly risk committee meetings address potential risk areas and raise early-warning signals
GFM: How has your fund performed?
AS: Last year the fund’s euro share class achieved an annualised 0.58 per cent return while the three-times-leveraged euro class declined by 2.5 per cent; the US dollar class lost 0.38 per cent and the 3x leveraged dollar class 3.44 per cent.
The Dollar share class has returned a cumulative 25.4 per cent since launch in November 2006 and the euro class 25.0 per cent since January 2007. The euro and US dollar 3x leveraged classes, both launched in May 2008, returned 31.08 and 22.46 per cent respectively up to the end of last year.
The Diva Synergy Ucits Fund returned 1.34 per cent between its launch in June 2011 and the end of the year.
GFM: Are you looking at any particularly attractive opportunities right now?
AS: The failure of the AT&T/T-Mobile deal has led to a repricing of the antitrust risk that we believe is exaggerated. It thus creates opportunities such as the UTC/Goodrich or Google/Motorola deals.
GFM: What developments do you expect to see in your investment sector or industry field in the coming year?
AS: We expect a pick-up in European M&A volumes, as already witnessed in North America, which should create more lucrative investment opportunities for us.More deals should translate into better performance.
GFM: What do investors currently expect from managers, and how do you deal with those expectations?
AS: Investors expect capital protection, transparency, liquidity and robust risk-adjusted returns. We offer a daily liquid fund; we made money in four out of our five years of existence (and lost just 3 per cent in 2008); and we strive to be very transparent with our investors.
GFM: What differentiates you from other managers in your sector?
AS: The fund strategy is unique. To achieve regular and persistent alpha generation, Diva allocates its assets between its event-driven and merger arbitrage portfolios depending on market conditions.
The chief investment officer has 10 years’ experience in M&A advisory, enabling him to understand situations faced by the CEOs of either the acquirer or the target company in a process of negotiation, strategic or synergy valuation and financing capacities. The fund relies on a mix of fundamental expertise, trading experience and robust risk management.
GFM: How do you view the environment for fundraising over the coming 12 months?
AS: A lot of cash is sitting on the sidelines waiting to be invested. Investors will probably favour most liquid strategies and vehicles, and managers that have proved their ability to protect capital during the crisis.
GFM: How do you expect your business to be affected by current and proposed regulatory changes?
AS: We expect regulation to be more and more stringent. This should affect the industry in increasing compliance costs and thus fees charged by funds to their clients.
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