The Picton Mahoney Fortified Arbitrage Alternative Fund Class F returned 0.73%, and the Picton Mahoney Fortified Arbitrage Plus Alternative Fund Class F returned 0.77% in the fourth quarter of 2024.
It was another steady quarter for the arbitrage strategy, which had its first calendar year since launching without a down month – the positive monthly return streak is now 19 months1. As we reported in the third quarter, our arbitrage alpha has come from avoiding excessive risk in an environment where risky arbitrage situations have largely not paid off. Arbitrage turmoil in the fourth quarter was widespread following the turbulence of Capri-Tapestry and Albertson’s-Krogers court losses, and the Biden administration cited national security concerns for blocking the U.S. Steel-Nippon Steel deal. In Canada, STEP Energy Services Ltd shareholders rejected a bid from majority holder ARC Financial Corp. Additionally, in Asia, China TCM’s parent surprisingly failed to secure regulatory approval.
Fortunately, we had positive contributions this quarter from the successful completion of several notable deals: Stericycle-Waste Management closed on a much faster timeline than originally expected; Axonics-Boston Scientific closed without challenge after a prolonged review; Stelco-Cliffs was a brief and straightforward counterpoint to the drama of U.S. Steel. One of our largest exposures, Canadian Western Bank-National Bank, received regulatory approvals almost a full year quicker than they originally guided, contributing a very attractive return to the portfolio performance, although not without some short-term drama related to a delayed earnings release that was poorly communicated.
Several significant deals were announced this quarter with attractive risk-adjusted arbitrage spreads. Retail Opportunity Investments Corp is being acquired by Blackstone Inc in a very straightforward real estate deal. Verizon announced a transaction to reacquire some assets previously spun off to Frontier Communications. Summit Materials Inc is being purchased by Quikrete Holdings Inc to vertically integrate its cement supply chain.
The much-anticipated U.S. election had many twists, turns, and surreal moments before concluding with Biden being replaced by a return of Trump to the White House. In a move welcomed by merger arbitrageurs, Trump has quickly named replacements for the controversial heads of both the Department of Justice and the Federal Trade Commission – Gail Slater and Andrew Ferguson, respectively. Both antitrust agencies are expected to abandon the novel merger enforcement attempts of the past four years and stick to traditional theories of harm – bringing a much-needed sense of normalcy for merging parties and raising confidence in expected outcomes. The M&A industry is generally optimistic, and this will also likely lead to an increase in deal activity.
The Special Purpose Acquisition Company (SPAC) new issue activity continued in the fourth quarter, albeit at a somewhat slower pace, as investors sought to improve terms.
1M (%) | 3M (%) | 6M (%) | 1YR (%) | 3YR (%)* | 5YR (%)* | Since Inception* (Jan 3, 2019) | |
Picton Mahoney Fortified Arbitrage Alternative Fund (Class F) | 0.27 | 0.73 | 1.66 | 3.45 | 2.77 | 5.67 | 5.22 |
Picton Mahoney Fortified Arbitrage Plus Alternative Fund (Class F) | 0.21 | 0.77 | 2.06 | 4.33 | 3.54 | 9.90 | 9.02 |
(*) refers to average annualized performance
1 Picton Mahoney Fortified Arbitrage Alternative Fund and Picton Mahoney Arbitrage Fund.
This material has been published by Picton Mahoney Asset Management (“PMAM”) as at January 13, 2025. It is provided as a general source of information, is subject to change without notification and should not be construed as investment advice. This material should not be relied upon for any investment decision and is not a recommendation, solicitation or offering of any security in any jurisdiction.
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