Skip to mainSkip to footer

Carmignac Merger Arbitrage: Letter from the Portfolio Managers

Author(s)
Fabienne CRETIN-FUMERON,Stéphane DIEUDONNÉ
Published on
14 April 2025
Read time
3 minute(s) read

Dear investors,

Across all asset classes, investors experienced one of their worst quarters since 2022. In a geopolitical environment that has changed abruptly, our Merger Arbitrage strategy has shown solid resilience.

Trump's announcement of the US tariff war against the rest of the world, followed by Germany's massive investment plan, thus renouncing its restrictive debt policy, has truly marked a regime change in the financial markets.

Market environment

Thus, during the first quarter of 2025, investors experienced:

  • A fall of 10.1% on the S&P 500 and 13.4% on the Nasdaq between the peak and trough1.
  • A fall of 1.3% on the US High Yield index between the peak and trough2.
  • A historic rise of almost 50bp in the German 10-year rate3.
  • A major sector rotation with a 33% rebound in defensive stocks compared to cyclical stocks in the US after more than 4 years of underperformance4.
  • An unexpected geographical rotation with Europe outperforming the US by 15%5.
  • A rotation in investment style with a 10% outperformance of ‘Value’ compared to ‘Growth’ after 2 years of underperformance6.

In this particularly complicated environment, Carmignac Portfolio Merger Arbitrage Plus stands out for:

  • A positive performance of 1.05% (I EUR shareclass) since the beginning of the year.
  • Stable volatility of less than 2.0%.
  • A clear decorrelation from equities and credit (correlation coefficient of 0.2 since the beginning of the year compared to the SPX Index and IBOXHY Index).
  • Limited drawdowns: -51bp from 24/01 to 31/01 and -32bp from 03/03 to 11/03.

Despite turbulent stock markets, M&A activity has remained fairly strong at the beginning of the year, albeit with a strong geographical disparity.

Indeed, at the global level, 93 new transactions were announced during the quarter, a slight increase of 1% compared to the same period last year, for a total of $285 billion, a decrease of 6%. While the US saw a decline of around 20% in both volume and value, Europe and Asia recorded a sharp rebound, up 47% and 26% respectively in value. In Europe, as usual, most of the growth came from the UK, followed this quarter by Italy.

Among the most significant deals announced this quarter, we note: in the US, Walgreens Boots Alliance ($39 billion) Mr Cooper Group ($21 billion) and Intra-Cellular Therapies ($14 billion), and, in Europe, Mediobanca di Credito Finanziario ($14 billion), Subsea 7 ($6 billion) and Just Eat Takeaway.com ($5 billion).

Finally, we should emphasise the rise of private equity funds, which are taking advantage of the fall in interest rates to deploy their capital more aggressively. During the first quarter of 2025, financial buyers accounted for 30% of acquirers, compared with only 20% in the same period last year.

Performance review

Behind the good quarterly performance of our Merger Arbitrage strategy lies a simple idea: during an officially announced M&A transaction, if a Merger Arbitrage fund is effectively invested in equities, it essentially holds contracts between the acquirer and the target, the clauses of which do not depend on market conditions.

Therefore, a Merger Arbitrage portfolio can be analysed as a set of idiosyncratic risks. It follows that a Merger Arbitrage fund is not impacted by fluctuations in the equities and credit markets or by sectoral, geographical or investment style rotations.

During this 1st quarter, we have benefited from good news that has contributed positively to performance:

  • A nice increase in the bid from Herc Holdings for the industrial equipment company H&E Equipment Services, with a price 20% higher than the initial offer from United Rentals.
  • The approval by the American antitrust authorities of the acquisition of HashiCorp ($6bn) by IBM, which was still subject to some uncertainty.
  • The completion of a large number of transactions: Altair Engineering, Arcadium Lithium, DS Smith, Intra-Cellular Therapies and Shinko Electric Industries.
  • The narrowing of spreads that had been under pressure at the end of last year: Enstar Group, Hess, Kellanova and Spirent Communications.

On a more negative note, the FTC has blocked two transactions:

  • The acquisition of Juniper by Hewlett Packard Enterprise for $13 billion. The case is now before an American judge, whose decision is expected in September. The first drawdown in January can be explained mainly by this event, which was not anticipated by most arbitrageurs.
  • The acquisition of a small medical equipment company, Surmodics ($600m), by a private equity group. In this case too, the operation has entered a legal phase, but there is a possibility of divestment, which would resolve the competition issues raised by the FTC before the judge's final decision.

Finally, a few spreads proved more volatile than average, also contributing negatively to the quarterly performance. These included Discover Financial, Banco BPM, Verallia and Despegar.com.

What is our outlook for the coming months?

We believe that 2025 is shaping up to be much more promising thanks to an antitrust environment more favourable to M&A activity worldwide:

  • In the US, following Trump's election, a new administration should result in a reset of antitrust policy in certain economic sectors.
  • In Europe, a change in doctrine with the publication of the Draghi report recommending the emergence of national champions to face global competition, regulator.
  • In the United Kingdom, the new government is pushing the competition authorities to take greater account of economic considerations in their decisions.
  • In Japan, the opening up of capital markets to foreign investors is continuing.

The fall in short-term rates should also drive M&A activity in the coming quarters.

Under these conditions, the continuation of the M&A cycle that began at the end of 2023 should strengthen. We should thus be in a position to deploy more capital in Merger Arbitrage, while controlling the risks thanks to good diversification in the funds.

Merger Arbitrage Team

Source: Carmignac, Bloomberg as of 31/03/2025.

1SPX Index et CCMP Index from 19/02 to 13/02.
2IBOXHY Index from 26/02 to 13/03.
3GDBR10 Index from 10/02 to 11/03.
4Ratio MSMSDEFS Index / MSXXHBC Index from 15/01 to 31/03.
5Ratio SXXP Index / SPX Index from 01/01 to 18/03.
6Ratio IVE US Equity / IVW US Equity from 21/01 to 10/03.

Carmignac Portfolio Merger Arbitrage Plus I EUR Acc

ISIN: LU2585801330
Recommended minimum investment horizon
3 years
Risk indicator*
2/7
SFDR - Fund Classification**
Article 8

*Risk Scale from the KID (Key Information Document). Risk 1 does not mean a risk-free investment. This indicator may change over time. **Sustainable Finance Disclosure Regulation (SFDR) 2019/2088. The SFDR classification of the Funds may change over time.

Main risks of the fund

Equity: The Fund may be affected by stock price variations, the scale of which is dependent on external factors, stock trading volumes or market capitalization.
Arbitrage: Arbitrage seeks to benefit from such price differences (e.g. in markets, sectors, securities, currencies). If arbitrage performs unfavorably, an investment may lose its value and generate a loss for the Sub-Fund.
Risk associated with the Long/Short Strategy: This risk is linked to long and/or short positions designed to adjust net market exposure. The Fund may suffer high losses if its long and short positions undergo simultaneous unfavourable development in opposite directions.
Liquidity: Temporary market distortions may have an impact on the pricing conditions under which the Fund might be caused to liquidate, initiate or modify its positions.
The Fund presents a risk of loss of capital. Please refer to the Fund’s prospectus to view the exhaustive list of risks.

Fees

ISIN: LU2585801330
Entry costs
We do not charge an entry fee. 
Exit costs
We do not charge an exit fee for this product.
Management fees and other administrative or operating costs
1.12% of the value of your investment per year. This estimate is based on actual costs over the past year.
Performance fees
20.00% max. of the outperformance if the performance is positive and the net asset value exceeds the high-water mark. The actual amount will vary depending on how well your investment performs. The aggregated cost estimation above includes the average over the last 5 years, or since the product creation if it is less than 5 years.
Transaction Cost
0.23% of the value of your investment per year. This is an estimate of the costs incurred when we buy and sell the investments underlying the product. The actual amount varies depending on the quantity we buy and sell.

Performance

ISIN: LU2585801330
Carmignac Portfolio Merger Arbitrage Plus+1.0+3.7+3.2
Carmignac Portfolio Merger Arbitrage Plus+3.8%-+4.0%

Source: Carmignac at 31 Mar 2025.
Date of 1st NAV : 14/04/2023.
Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor). The Fund presents a risk of loss of capital.
The return may increase or decrease as a result of currency fluctuations, for the shares which are not currency-hedged.

Reference Indicator: -

Share

Marketing communication. Please refer to the KID/KIID, prospectus of the fund before making any final investment decisions. This document is intended for professional clients.

This material may not be reproduced, in whole or in part, without prior authorisation from the Management Company. This material does not constitute a subscription offer, nor does it constitute investment advice. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice. This material has been provided to you for informational purposes only and may not be relied upon by you in evaluating the merits of investing in any securities or interests referred to herein or for any other purposes. The information contained in this material may be partial information and may be modified without prior notice. They are expressed as of the date of writing and are derived from proprietary and non-proprietary sources deemed by Carmignac to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Carmignac, its officers, employees or agents.

Past performance is not necessarily indicative of future performance. Performances are net of fees (excluding possible entrance fees charged by the distributor). The return may increase or decrease as a result of currency fluctuations, for the shares which are not currency-hedged.

Reference to certain securities and financial instruments is for illustrative purposes to highlight stocks that are or have been included in the portfolios of funds in the Carmignac range. This is not intended to promote direct investment in those instruments, nor does it constitute investment advice. The Management Company is not subject to prohibition on trading in these instruments prior to issuing any communication. The portfolios of Carmignac funds may change without previous notice. The reference to a ranking or prize, is no guarantee of the future results of the UCIS or the manager.

Morningstar Rating™ : © Morningstar, Inc. All Rights Reserved. The information contained herein: is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Access to the Funds may be subject to restrictions regarding certain persons or countries. This material is not directed to any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the material or availability of this material is prohibited. Persons in respect of whom such prohibitions apply must not access this material. Taxation depends on the situation of the individual. The Funds are not registered for retail distribution in Asia, in Japan, in North America, nor are they registered in South America. Carmignac Funds are registered in Singapore as restricted foreign scheme (for professional clients only). The Funds have not been registered under the US Securities Act of 1933. The Funds may not be offered or sold, directly or indirectly, for the benefit or on behalf of a «U.S. person», according to the definition of the US Regulation S and FATCA.
The risks, fees and ongoing charges are described in the KID (Key Information Document). The KID must be made available to the subscriber prior to subscription. The subscriber must read the KID. Investors may lose some or all their capital, as the capital in the funds are not guaranteed. The Funds present a risk of loss of capital.

The Funds’ prospectus, KIDs, NAVs and annual reports are available at www.carmignac.com/en, or upon request to the Management Carmignac Portfolio refers to the sub-funds of Carmignac Portfolio SICAV, an investment company under Luxembourg law, conforming to the UCITS Directive. The French investment funds (fonds communs de placement or FCP) are common funds in contractual form conforming to the UCITS or AIFM Directive under French law.

  • In the United Kingdom: the Funds’ respective prospectuses, KIIDs and annual reports are available at www.carmignac.com/en-gb, or upon request to the Management Company, or for the French Funds, at the offices of the acilities Agent, Carmignac UK Ltd, 2 Carlton House Terrace, London, SW1Y 5AF. This document was prepared by Carmignac Gestion, Carmignac Gestion Luxembourg or Carmignac UK Ltd. FP Carmignac ICVC (the “Company”) is an Investment Company with variable capital incorporated in England and Wales under registered number 839620 and is authorised by the FCA with effect from 4 April 2019 and launched on 15 May 2019. FundRock Partners Limited is the Authorised Corporate Director (the “ACD”) of the Company and is authorised and regulated by the FCA. Registered Office: Hamilton Centre, Rodney Way, Chelmsford, Essex, CM1 3BY, UK; Registered in England and Wales with number 4162989. Carmignac Gestion Luxembourg SA has been appointed as the Investment Manager and distributor in respect of the Company. Carmignac UK Ltd (Registered in England and Wales with number 14162894) has been appointed as a sub-Investment Manager of the Company and is authorised and regulated by the Financial Conduct Authority with FRN:984288.

  • In Switzerland: the prospectus, KIDs and annual report are available at www.carmignac.com/en-ch, or through our representative in Switzerland, CACEIS (Switzerland), S.A., Route de Signy 35, CH-1260 Nyon. The paying agent is CACEIS Bank, Montrouge, Nyon Branch / Switzerland, Route de Signy 35, 1260 Nyon.

  • In Belgium: This document is intended for professional clients. This content has not been validated by FSMA. The decision to invest in the promoted fund should take into account all its characteristics or objectives as described in its prospectus. This communication is published by Carmignac Gestion S.A., a portfolio management company approved by the Autorité des Marchés Financiers (AMF) in France, and its Luxembourg subsidiary Carmignac Gestion Luxembourg, S.A., an investment fund management company approved by the Commission de Surveillance du Secteur Financier (CSSF). “Carmignac” is a registered trademark. “Investing in your Interest” is a slogan associated with the Carmignac trademark. This document does not constitute advice on any investment or arbitrage of transferable securities or any other asset management or investment product or service. The information and opinions contained in this document do not take into account investors’ specific individual circumstances and must never be interpreted as legal, tax or investment advice. The information contained in this document may be partial and could be changed without notice. This document may not be reproduced in whole or in part without prior authorisation. The risks and fees are described in the KID (Key Information Document). The prospectus, KID, the net asset-values and the latest (semi-) annual management report may be obtained, free of charge, in French or in Dutch, from the management company (tel. +352 46 70 60 1) or by consulting its website or www.fundinfo.com. These materials may also be obtained from Caceis Belgium S.A., the financial service provider in Belgium, at the following address: avenue du port, 86c b320, B-1000 Brussels. The Fund (fonds commun de placement or FCP) is a common fund in contractual form conforming to the UCITS Directive under French law. Access to the Fund may be subject to restrictions regarding certain persons or countries. The Funds are not registered for retail distribution in Asia, in Japan, in North America, nor are they registered in South America. Carmignac Funds are registered in Singapore as restricted foreign scheme (for professional clients only). The Funds have not been registered under the US Securities Act of 1933. The Funds may not be offered or sold, directly or indirectly, for the benefit or on behalf of a «U.S. person», according to the definition of the US Regulation S and FATCA. In case of subscription to a fund subject to Article 19bis of the Belgian Income Tax Code (CIR92), the investor will have to pay, upon redemption of his or her shares, a withholding tax of 30% on the income (in the form of interest, or capital gains or losses) derived from the return on assets invested in debt claims. Distributions are subject to withholding tax of 30% without income distinction. In case of subscription in a French investment fund (fonds commun de placement or FCP), you must declare on tax form, each year, the share of the dividends (and interest, if applicable) received by the Fund. Any complaint may be referred to complaints@carmignac.com or CARMIGNAC GESTION - Compliance and Internal Controls - 24 place Vendôme Paris France or on the website www.ombudsfin.be.

The Management Company can cease promotion in your country anytime. Investors have access to a summary of their rights at section 5 entitled "summary of investor rights" on the following links: UK ; Switzerland ; France ; Luxembourg ; Sweden. Belgium (French) ; Belgium (Dutch)

For Carmignac Portfolio Long-Short European Equities: Carmignac Gestion Luxembourg SA in its capacity as the Management Company for Carmignac Portfolio, has delegated the investment management of this Sub-Fund to White Creek Capital LLP (Registered in England and Wales with number OCC447169) from 2nd May 2024. White Creek Capital LLP is authorised and regulated by the Financial Conduct Authority with FRN : 998349.

Carmignac Private Evergreen refers to the Private Evergreen sub-fund of the SICAV Carmignac S.A. SICAV – PART II UCI, registered with the Luxembourg RCS under number B285278.