14 May 2021
Felix Lo has joined Family Office-backed Alternatives firm, Trium Capital, to launch his Global Merger Arbitrage & Event strategy. Lo spent 10 years at Sandell Asset Management where he was responsible for the firm’s Global Merger Arbitrage & Event portfolio, managing up to $1.4 billion.
Lo moved to LMR in 2017 where he and his Analyst Neo Tsangarides successfully ran the same strategy before joining Millennium in 2019, where the team ran up to $500mm of capital.
Lo and Tsangarides will launch the Trium Khartes Event Driven Fund, with an expected $200 million based on investor commitments, significant ‘skin-in-the-game’ from Lo, and double-digit million seed capital from Trium Capital.
The strategy delivers a consistent source of true uncorrelated returns by investing in a wide spectrum of global merger and corporate events. The team focuses on relatively under-covered international small and mid-cap situations to generate additional alpha, while increasing diversification and reducing volatility.
M&A roars back
Lo believes the opportunity set has ripened for the strategy: “The data is hugely encouraging. The second half of 2020 was the busiest on record and, overall, M&A activity has now fully recovered to above pre-COVID levels. This has led to an attractive supply/demand opportunity for our strategy; the volume and size of deals in 2021 is outstripping available capital, leading to wider deal spreads and above-average returns.
“The bounce back is also supported by resounding business confidence. Nearly every index/survey of CEO and business confidence, from PMIs to US Business Roundtable CEO surveys are back or above 2019 levels.”
Lo believes increased large cap deal activity is a good leading indicator for M&A. “Historically, coming out of a big market shock, deal activity slowly recovers through smaller deals. In 2008, it took until 2014 before large cap deals started coming back. This time around, the recovery has been dramatic – by December, large cap activity has exceeded pre-pandemic levels, which bodes well for forward looking activity.”
Lo also says regulation uncertainty has helped to keep spreads wide, while hyper demand for new issuances and SPACs have absorbed capital. A further tailwind for returns he says is that increased PE activity in the early stages of the recovery is now being supplanted by strategic activity, as corporates make deals to adapt to the post-pandemic world. “With a busy universe, there will be more opportunity to unearth under covered smaller mid-cap deals across geographies, creating more scope for alpha generation.”
Natural inflation hedge
Donald Pepper, co-head of Trium, added: “Felix has demonstrated an outstanding track record of largely avoiding deal break risk and achieving impressive returns over cash with low volatility.
“Historically, the strategy provides a consistent source of uncorrelated returns, but is also natural hedge against rising rates, as merger arbitrage trades have relatively short duration. Indeed, higher interest rates historically have corresponded with higher absolute returns for Merger Arb funds as they benefit from both higher base rates and higher risk premiums for deal risk.”
Lo commented: “From an investment standpoint, the team and process will remain the same, but with the added support of Trium’s experienced operations, risk and business development teams, we will be able to better focus on managing and growing our client’s assets.”
Shenan Dhanani, co-head of Trium Capital, commented: “We seek to attract the world’s most exceptional managers and are delighted that Felix has determined to team up with Trium. We expect to garner strong further investor interest following this substantial launch. Our experience and resources will allow him to scale a growing diversified investor base, while delivering a rich source of uncorrelated returns."