Cheyne Capital is shaping up to launch a mergers and acquisitions fund regulated under European Union UCITS rules, to meet increased investor demands for more liquid and transparent investments. The U.K.-based credit specialist said merger arbitrage is coming back after tapering off during the credit crisis, pointing to the recent merger of U.S. food company Kraft with U.K. confectioner Cadbury as evidence.
"We are definitely raising money there and we're looking at a UCITs format," Cheyne Capital chief investment officer Chris Goekjian said at the Reuters Private Equity and Hedge Funds Summit in London. "What you've seen generally is hedge funds adapting their investment strategies to fit UCITS rules. Merger arbitrage is one of the [adaptable] areas, and it's got the liquidity."
European Union regulations known as UCITS III have strict transparency and liquidity requirements. They have grown in popularity since the credit crisis, when many investors found themselves locked into investments when some securities markets turned illiquid and asset managers imposed restrictions on withdrawals. Mr. Goekjian said that given the depth and liquidity of markets and transparency of prices, M&A strategies could be structured into UCITS compliant funds.
The M&A market is also more promising for hedge fund managers than it was prior to the credit crisis, when too much money was trying to squeeze returns from the same transactions.
"What you get in merger arbitrage today, and this shows how much capital there is versus say 2007, is you can have positive carry [extra yield] plus the upside of a potential other bidder," said Mr. Goekjian. "It shows the relative amount of capital deployed in these situations is much less than it was."
He said there was no definite launch date for the fund yet, although it was a work in progress that would be brought to completion.
"We need to come up with investment products that meet the needs of our clients," he said. "If we don't someone else will."
