Merger arbitrage as a fixed-income alternative
The guest argued that merger arbitrage can serve as a viable alternative to fixed-income investing, particularly in low interest rate environments.
The argument
The guest explained that when interest rates were near zero, capturing small merger spreads (e.g., 3%) on deals closing every few months could yield attractive annualized returns compared to bonds. However, this strategy was noted as being more difficult over the last two years, leading to a reduced portfolio allocation.
The thesis, stress-tested
✓ What validates it
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▸ Risks discussed
- ▸Regulatory intervention causing deals to collapse
- ▸Rising interest rates making fixed income relatively more attractive
- ▸Deal failure risk leading to outsized capital losses
Hear it yourself
"But when it comes to merger arbitrage, for me, the strategy was an alternative to fixed income investing. It might not be the same for everyone, but back when interest rates were zero, you got basically no interest when you whether whether you had money kept parked in a bank or whether you had, bonds, your the rate of return was very low."
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