Schroders is to launch another externally-managed fund on its GAIA platform, Schroder GAIA Paulson Merger Arbitrage, subject to regulatory approval.
As it’s name suggests, the fund’s strategy is fundamental merger arbitrage, investing mainly in US, Western European and Canadian large cap public equities currently or potentially involved in mergers and other corporate events, including but not limited to exchange offers, bankruptcy reorganisations or liquidations.
The fund will be managed by John Paulson of Paulson & Co, which runs USD7.6bn in the merger strategy. The Schroder GAIA fund will be based (minimum 85% overlap anticipated) on the Paulson International Limited fund (“Paulson hedge fund”) which launched in 1996, has an AUM of USD1.7bn and has produced an annualised net return of over 12% since inception.
The fund is benchmark unconstrained and will target an annualised return of 8-10% net of fees, with expected volatility of 6-8%. The Fund can invest globally in equity, equity related and debt securities of companies and the strategy focuses on high quality, larger spread deals, which gears the portfolio towards transactions with competing higher bid probability as well as focusing on unique deal structures. In particular, the team invests in complex merger related opportunities which offer higher potential alpha than “plain vanilla spread” deals typically used by other merger arbitrage managers.
John Paulson, President of Paulson & Co, says: “We are very pleased to be partnering with Schroders and look forward to being able to offer our merger arbitrage capabilities to a wider audience via the strength of the Schroder GAIA distribution network.”
Eric Bertrand, Director of GAIA platform, says: “We are constantly on the lookout for high-quality hedge fund managers to join our Schroder GAIA funds. John Paulson brings one of the longest, most successful, track records in the merger arbitrage industry producing strong risk adjusted returns in his flagship fund, which has only ever had two down years since inception in 1996. This strategy will be of interest to investors seeking above average returns with low correlation to the broad markets and in a manner that aims to preserve capital.”
The GAIA platform was launched in November 2009 and has now reached USD5.6bn in assets under management. It combines the strength of Schroders’ renowned asset management expertise and extensive distribution capability with leading hedge fund managers. Schroder GAIA offers access to liquid alternative investment strategies with moderate to low correlations to mainstream market returns within a Luxembourg mutual fund format subject to the ‘gold standard’ UCITS regulations.
Following the launch there will be seven funds on the platform, four managed by external hedge fund managers (Schroder GAIA Egerton Equity, Schroder GAIA Sirios US Equity, Schroder GAIA Avoca Credit and the soon to be added Schroder GAIA Paulson Merger Arbitrage) and three managed internally (Schroder GAIA Cat Bond, Schroder GAIA QEP Global Absolute and Schroder GAIA Global Macro Bond).
Bertrand says: “We believe that the fund will be a complementary addition as it is differentiated from both the existing GAIA funds and Schroder funds more broadly given that the strategy’s alpha source is a portfolio of idiosyncratic situations with little correlation to markets and amongst themselves.”