August 25, 2021 — Three major themes have become top of mind for merger arbitrageurs: the U.S., China and meme stonks.

What concerns deal investors regarding the U.S. is their antitrust enforcers, the Department of Justice (DoJ) and the Federal Trade Commission (FTC). Specifically, two events have spooked arbitrageurs regarding the U.S. antitrust regulators. First, the FTC appointed Lina Khan, an inexperienced 32-year-old bulldog, as its commissioner. She has made it clear that she wants the FTC to get aggressive in trying to block industry consolidation (thus far, she has focused on big tech). …

August 24, 2021 — Six months ago, the SPAC market was about flying taxis, innovative electric vehicle charging and futuristic battery technology.

Now that the party has turned into a hangover, the SPAC market now represents plain-old discounted Treasury bills.

Specifically, buying a SPAC at $9.60 or $9.70 is analogous to buying a short-term T-bill at 96 to 97 cents on the dollar. However, on an after-tax basis, yield gained through SPAC arbitrage is vastly superior to that of bonds, given the yield generated through SPACs is via tax-efficient capital gains.

Nonetheless, as over 97% of the blank check market…

July 22, 2021 — In a world starved for yield, SPAC arbitrage stands out as one of the most attractive low-risk strategies to generate yield.

Since peaking at 1.75% in March, the 10-Year U.S. Treasury yield has fallen to just 1.25%. To most investors, an interest rate of 1.25%, with little upside potential, is insufficient given the duration risk in an inflationary environment.

In contrast, since bottoming at a stunning negative -4.0% in February, SPAC arbitrage yields have increased to 1.7%.

June 29, 2021 — In the context of rock-bottom corporate bond yields, merger arbitrage continues to stand out as an attractive strategy for investors seeking to generate yield.

Investment-grade BBB corporate bonds yield just 2.3% and non-investment-grade CCC and lower junk bonds yield 6.7%.

As discussed in last month’s Merger Monitor, pre-Covid, merger arbitrage yields generally sat below that of junk bonds. Based on this comparison, one would expect merger arbitrage to yield roughly 5% to 6%, based on current junk bond yields.

The average merger currently yields 9.1%, highlighting the attractiveness of the opportunity set. Merger arbitrage is now…

Even as the tech-heavy NASDAQ Index his new all-time highs, tech-focused SPACs remain primarily ignored by the market.

June 1, 2021 — In their younger years, Berkshire Hathaway’s Warren Buffett and Charlie Munger were both aggressive hedge fund managers, with each running an investment partnership on behalf of wealthy clients.

Warren and Charlie, Hedge Fund Pioneers

Buffett launched his hedge fund, Buffett Partnership Ltd., in 1957. He established a phenomenal track record, compounding investor capital at 31.6% annually (before fees), with no down years, prior to retiring in 1969. Over this time period, the Dow Jones Industrial Average grew at 9.1% per annum.

May 28, 2021 — Merger arbitrage yields have reset to a “new normal” in the post-Covid environment.

Before March 2020, merger arbitrage yields averaged 5%, representing a 300 basis point risk premium to T-bill yields.

Currently, merger arbitrage yields are approximately 8.0%, and with T-bill yields near 0.0%, represent a risk premium or spread of 800 basis points.

May 27, 2021 — The recovery in markets over the past fourteen months has been nothing short of stunning.

Nearly every asset class is up materially since early April 2020. At the start of 2020’s second quarter, global markets were bouncing off the lows of one of the quickest bear markets on record.

In early April 2020, junk bonds yielded north of 7.0%. They now generate a measly 3.4%. Bonds have rallied markedly since the crash.