Bestinvest says
Merger arbitrage is one of the most replicable hedge fund strategies. Historically, it has also offered low volatility and correlation characteristics with other asset asset classes and strategies. The strategy works best where take over activity and 'deal premiums' are high. Periods of poor performance have been evident at times of market distress when cash deals have failed to complete. Whilst the fund has limited real time performance data, we believe the systematic nature of the investment process adds validity to the back test data.
To provide a return in excess of its cash benchmark by taking advantage of the "deal risk premium" factored into the price of companies which are involved in merger activity, takeovers, tender offers and other corporate activities anywhere in the world. The fund will make use of index futures, short equity positions and cash in addition to long equity exposure. Minimum criteria apply with regard to liquidity, market capitalisation and the deal premium offered. Where the compensation offered to shareholders of the target company is equity the fund will seek to hedge the offer.