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Weekly Brief: M&A frenzy in health care fuels event driven

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Hedge Funds have continued to deliver solid returns in 2015, with the Lyxor HFI up 1.3% last week and 3.4% year to date. The first quarter of 2015 is actually on track to be the best quarter for hedge funds since Q2-2007, when the Lyxor HFI was up 3.7%. At present, 85% of the funds included in our sample are positive year to date.

 


Philippe Ferreira

Head of Research – Managed Account Platform

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Hedge Funds have continued to deliver solid returns in 2015, with the Lyxor HFI up 1.3% last week and 3.4% year to date. The first quarter of 2015 is actually on track to be the best quarter for hedge funds since Q2-2007, when the Lyxor HFI was up 3.7%. At present, 85% of the funds included in our sample are positive year to date.

CTAs and Event Driven managers outperformed, both last week and year to date, as a result of the peculiar market environment which continues to see equities and bonds delivering positive returns. Financial markets find themselves in a sweet spot, where economic recovery is supporting consumer confidence but not at such a point that would lead central banks to tighten their monetary policy.

CTAs have actually been firing on all cylinders: their positioning on all asset classes has proven supportive: long US fixed income, long global equities, long USD against other currencies, short commodities. The Fed dovish stance expressed at the latest FOMC meeting is likely to further enhance these drivers of performance in Q2.

Meanwhile, Event Driven is also among the best in class, as a result of the continued M&A frenzy in the pharma sector. On 11 March, Endo topped Valeant’s all cash deal to acquire Salix. The target is one of the top exposures of merger arbitrageurs (see chart). Valeant responded shortly by raising the bid, forcing the rival bidder out of the running. The Salix share price rose by 9.5% over the period, fuelling the returns of event-driven managers. In parallel, the acquisition of Allergan by Actavis passed the last regulatory hurdle and closed on 17 March. Both the stock price of the target and the acquirer rose, reflecting the market’s view on the accretive nature of the deal. Special Situation funds betting on the accretion were rewarded. 

Finally, Macro managers and L/S Equity also benefitted from the equity market rally in developed markets. Within L/S equity, long biased managers and Asian managers outperformed. EM managers underperformed as EM equities have suffered recently.

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