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It’s 3:55 A.M. And Merger Arb Is The Only Girl Left At The Bar

You'll do.
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Things are looking pretty grim in Alphaville. John Paulson’s best trade is revisiting a possible move to San Juan. Participation trophies are being awarded. Dan Loeb is provisioning his survival bunker and has no intention at all of letting anyone else inside.

Desperate times, indeed. And desperate times—well they call for desperate measures. And there’s no desperate measure like reaching for the merger-arb crutch and its comparatively huge 1.3% return this year, itself just another sign of the coming hedge fund apocalypse.

“The opportunity set is good, but it’s not this massive, juicy pile of money waiting to be scooped up," said Paul Glazer, whose nearly $1 billion Glazer Capital Management has been investing in the strategy since 1999…. “Most strategies have done so poorly, and merger arbitrage really shines in comparison in times of distress like we’ve been experiencing," Glazer said….

The opportunity might be short-lived, he said. Most of the announced mergers are scheduled to close within the next six months, and spreads will start narrowing during the second and third quarters of this year….

“People get desperate and they stretch for what seems to be relatively riskless returns,” said Brad Balter, head of Balter Capital Management. “They often end up with exactly the opposite result.”

Come on, Brad, work with us! We’re living in the end times. Take no thought for the morrow.

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