Event-driven hedge fund managers could experience a pick-up in performance as merger and acquisition (M&A) activity is expected to accelerate, according to a London-based fund of hedge funds.
"Most recently, we have been allocating more money to event-driven [managers], where we think the prospects are good," Fauchier Partners chief executive Clark Fenton said.
Fenton said there were a number of factors that created favourable conditions for merger activity to increase.
"Cash is high on corporations' balance sheets, debt financing is very cheap and there is a lot of private equity money on the sidelines that needs to be spent - well north of $400 billion, we estimate," he said.
"And a lot of corporations are seeking ways to grow top line, or cut costs further, and corporate acquisitions or disposals can be part of those plans. Hedge funds in the event-driven area should be well positioned to profit from those sorts of events."
He said merger activity increased in the second half of 2010 and this year was shaping up to be a busy year as well.
Fauchier Partners is distributed in Australia by BNP Paribas Investment Partners and about 10 per cent, or $800 million, of its funds under management are sourced from Australian institutional investors, including legalsuper and REST.
During the global financial crisis many fund of hedge funds suffered heavy outflows as investors shied away from leveraged investments, with some funds being unable to meet all redemption requests.
This has tarnished the reputation of the sector, but Fenton said not all managers experienced the same problems.
"It is a heterogenous industry where there are good providers and bad providers," he said.
"There has been a divergence between funds of hedge funds that have an institutional client orientation and those that have more of a high net worth client orientation, with the institutional ones generally having fared better.
"I think there has been poor selling, especially to the retail clientele."
