Bernheim, Dreyfus launches Ucits version of Diva Synergy M&A fund
Bernheim, Dreyfus & Co, the Paris-based alternative asset manager, has launched a Ucits III version of its Diva Synergy Fund, an event driven, market-neutral equity fund focused on M&A.
The Diva Synergy Ucits fund will invest in M&A situations through the two sub-strategies of merger arbitrage and pre-event trades.
Merger arbitrage strategy seeks to capture the spread between a target company’s share price and the price offered by the acquirer. Bernheim will focus on publicly announced M&A transactions.
Its pre-event sub-strategy has exposure to expected deals through investments in companies that the investment team believes are potential M&A targets.
The two strategies are negatively correlated, said Amit Shabi, co-manager of the fund.
“The post-event arbitrage strategy performs best when volatility is above average as this causes merger spreads to widen. The pre-event portfolio does well when volatility is benign, stock prices are rising steadily and confidence is high,” he said.
Combining the merger arbitrage and pre-event strategies within a single fund enables steady returns through market cycles without increasing risk, Shabi said.
“The typical merger arbitrage manager will increase leverage when spreads are tighter in order to meet their return target. We don’t use any leverage. We can achieve the same return with less risk in the pre-event strategy,” he said.
The weighting between the merger arbitrage and pre-event portfolios is determined by levels of volatility and deal activity.
With volatility on the rise and deal activity forecast to increase by as much as 40% this year, around 65% of the fund’s capital is currently allocated to the arbitrage portfolio.
Bernheim, Dreyfus plans increasing its allocation to the pre-event portfolio in the second half of 2011.
The fund invests in stocks listed in Western Europe and North America, with around 80% of the portfolio invested in companies with a market capitalisation of over $500m.
Bernheim, Dreyfus employs the same dual-strategy approach in its offshore Diva Synergy fund, which has generated annualised returns of around 7% on an unleveraged basis since inception in 2007.
Bernheim, Dreyfus is launching the Ucits version of the Diva Synergy fund in response to investor demand for more liquid and transparent absolute return products, according to Shabi.
The Diva Synergy Ucits fund, is domiciled in France and regulated by the Autorité des Marchés Financiers, offers daily liquidity and position level transparency to investors.
The Ucits fund started investing on June 1 and has initial committed capital of $10m. Bernheim, Dreyfus aims to raise $100m for the fund in the first year.