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Alternative Market Briefing

Merger arb strategies offer higher yield, more attractive than bonds

Friday, August 12, 2016

Komfie Manalo, Opalesque Asia:

Is merger arb an alternative to bonds? This question was raised by Duncan Crawford, global head of hedge fund sales at Societe Generale during the latest Opalesque 2016 U.K. Roundtable.

Jean-François Comte, managing partner at Lutelia Capital, a specialist independent investment manager in arbitrage strategies, replied that from his perspective merger arb would be more attractive because it provides higher yield without the liquidity risk.

He commented, "I think one of the great benefits, to end the answer of arb versus fixed-income, is clearly the fact that you get higher yield without the liquidity risk. I think it’s fair to assume that if you look at expected risk-adjusted returns, right now the arb strategy is a lot more attractive."

Comte explained that one of the key reasons why a lot of people are looking at risk arb and merger arb is exactly because those do not have the same liquidity risk that they have plenty of in fixed-income strategies.

When is the music going to stop on the high-yield side?

In this context, Comte asked what would happen with high-yield if the markets face similar circumstances as in 2008? He believes that in such circumstances, it will be very likely that fund managers would once again......................

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