The manager believes there are exploitable price inefficiencies in M&A situations. Following an acquisition announcement, investors typically sell the target company, choosing to lock in gains and forego the relatively small remaining upside. By taking a contrarian position, the manager seeks to capture the spread between the target’s current share price and deal price. The merger arbitrage risk is predominantly idiosyncratic and can therefore be effectively diversified. The manager believes that by simultaneously holding a high number of positions and selecting M&A situations with the most rewarding risk/return profile in the low spreads’ space, attractive risk-adjusted returns can be delivered independent of market direction.
The manager uses a bottom-up approach to identify suitable deals across a diversified global universe. Quantitative screens narrow approximately 1,000–2,500 merger arbitrage deals per year to 150-300 potential investments. The manager conducts payoff analysis by establishing the deal closing horizon and calculating the expected return, while proprietary tools determine if this return can be enhanced through the use of options. Based on this analysis, the manager selects the most profitable structure for each deal. The resulting portfolio is diversified across 60-80 positions. The merger arbitrage strategy is the core allocation (approximately 80–90%) with the remainder comprised of tactical allocations in spin-offs and index reviews.
The fund is managed by Roberto Bottoli, an experienced merger arbitrage investor with 19 years’ investment experience and a proven merger arbitrage track record.
Roberto is supported by Jonathan Stanford. They are part of GAM’s non-directional equity team, which is led by CIO Gianmarco Mondani and comprises an additional nine investment professionals. The team has built a successful track record in long/short equity investing since 2002, managing a range of low volatility, liquid and transparent absolute return funds.
The team is based in Lugano, Switzerland and were formerly Arkos Capital SA, which was acquired by GAM in July 2012.
We believe that a diversified and conservative risk arbitrage strategy can deliver attractive risk-adjusted returns independent of market directionRoberto Bottoli, Investment Director.
If a counterparty to a financial derivative contract were to default, the value of the contract, the cost to replace it and any cash or securities held by the counterparty to facilitate it, may be lost.
Derivatives may multiply the exposure to underlying assets and expose the Fund to the risk of substantial losses.
The value of investments in assets that are denominated in currencies other than the base currency will be affected by changes in the relevant exchange rates which may cause a decline.
Investments in equities (directly or indirectly via derivatives) may be subject to significant fluctuations in value.
All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.