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Laxman Pai, Opalesque Asia:

Merger Arbitrage was among the most resilient hedge fund strategies during the first part of the market sell-off. However, during the second and third week of March, deal spreads widened indiscriminately, approaching levels last seen during the global financial crisis.

According to high-frequency benchmarks with a long track record such as the HFRX Merger Arbitrage, the strategy suffered its worst weekly loss on record (daily data starts on April 2003).

Lyxor in its weekly brief said: "Our Merger Arbitrage Peer Group suggests a rebound has started to take shape since the trough on March 18th (+5.3% up to March 24th)."

The month-to-date (MTD) figure remains poor (-9.4% as of March 24th) but in line with a 50/50 Equity/ Bond benchmark (-9.7%). "Performances within our Merger Arbitrage Peer Group range from -3.5% to -18.6% MTD," it said.

Merger Arbitrage is usually a low volatility strategy but March 16th was different

The substantial losses registered mid-March by Merger Arbitrage strategies were unprecedented. According to high-frequency benchmarks such as the HFRX Merger Arbitrage, the strategy suffered its worst weekly loss on record in the week from March 16th to 20th (daily data from HFR starts on April 2003).

March 16th was a particularly dramatic session, with an unprecedented daily loss of 6.2%.

"Yet, in defense of the strategy on which we maintain an Overweight stance, this must be put in perspective wit......................

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