M and A activity spices hedge fund environment
The rise in global merger and acquisition activity will benefit hedge fund managers, according to RCG Capital Advisers managing principal Kenneth Phillips.
“This activity is great for us as we can make money on investing in takeover stocks,” he told Money Management during a visit to Melbourne late last week.
“If you can get part of the action you will make great money.”
Hedge funds can also generate returns from investing in private equity vehicles, as they can be a source of funding for these vehicles.
“A lot of these notes are below investment grade so hedge funds will pick them up,” Phillips said.
“These are very attractive investments for hedge funds in the short-term debt market.
“But hedge funds will also benefit when these deals blow up and they become distressed investments.”
Phillips was in the country for the launch of the Allco Modulus Series 1 Fund, which will offer a strategically diversified absolute return fund.
This fund is managed by RCG, which will use its Absolute Return Fund, which is a multi-hedge fund manager.
The fund opened for investments on November 15 and closes on December 15, with the aim of raising $95 million. The minimum investment is $50,000.
“There is a lot of money to be made from failed deals and we like a distressed market, but it does require specific skills,” Phillips said.
However, while the global merger and acquisition activity is presently keeping the US market buoyant, Phillips is predicting a slow down next year.
“With falling interest rates next year and a drop in housing, the market will slow down,” he said.
“We expect the interest rate to drop from 5.3 per cent to about 2.5 per cent.”
Again, with some stocks being put under pressure, this will create opportunities for hedge funds.
“Some sectors will do fine next year while others will come under pressure, such as building stocks,” Phillips said.
“What we need is some volatility in the market, which is good for us.”
Recommended for you
Platinum Asset Management has provided an update on the possibility of a merger with asset manager L1 Capital following a period of due diligence.
Commentators may be forecasting consolidation in private market firms but a survey of the industry itself expects new manager formation will still outpace this, especially in Asia Pacific.
Fund manager Pacific Current has appointed a former superannuation chief executive as its newest chair, succeeding Tony Robinson who departs after almost a decade to focus on his role at COG Financial.
The possibility of a private credit ETF is looking unlikely for now with US vehicles seeing limited uptake, according to commentators, but fixed income alternatives exist that can provide investors with a similar return.
