Key Takeaways
- • Aberdeen Standard Investments is bullish on merger arbitrage hedge funds, citing a surge in deal volumes and attractive arbitrage spreads driven by market volatility.
- • Duncan Moir, senior investment manager for alternative investment strategies at Aberdeen Standard, highlighted that nimble managers have captured some of their best returns in years by trading around widened spreads caused by broader market and deal-specific volatility.
- • Equity long/short hedge funds generated returns exceeding 26 percent over the preceding 12 months, making them one of the strongest-performing hedge fund strategies and positioning them well to capitalize on pandemic-related market disruptions.
- • Aberdeen's investment thesis on long/short equity strategies centers on true stock-picking capabilities, which have been validated by the ability to identify winners and losers across diverse sectors amid pandemic-driven market dislocation.
- • Historically, merger arbitrage has outperformed during recovery periods following volatile market environments, a pattern Aberdeen expects to continue given current market conditions.
Summary
Aberdeen Standard Investments has adopted a constructive stance on two hedge fund categories: event-driven merger arbitrage and equity long/short strategies, citing distinct but complementary market conditions that favor both approaches. According to Duncan Moir, senior investment manager for alternative investment strategies at Aberdeen Standard Investments' London office, the current environment presents compelling opportunities for managers operating in these spaces.
In the merger arbitrage space, Aberdeen's bullish outlook is grounded in surging deal volumes paired with exceptionally attractive arbitrage spreads. Moir emphasized that the volatility characterizing recent market conditions has created an unusually favorable setup for specialized managers. "Some of our managers have seen some of the best returns that they've had in a long time, and I think a lot of that has to do with the volatility in the market causing some pretty attractive spreads," Moir told Hedgeweek. He noted that nimble managers capable of trading tactically around spreads—particularly as they widen due to broader market volatility or deal-specific risks—have been best positioned to capture value. This dynamic echoes historical patterns in which merger arbitrage has performed strongly during recovery phases following volatile periods. Aberdeen cited the exceptional spread opportunities observed in March of the prior year as evidence of the current opportunity set, noting that attractive spreads remain available.
On the equity long/short front, Aberdeen's confidence derives from the strategy's demonstrated resilience and stock-selection capabilities in the pandemic environment. Over the preceding 12 months, equity long/short funds generated returns exceeding 26 percent, establishing the strategy as one of the strongest performers within the broader hedge fund universe. Aberdeen's investment thesis hinges on identifying true stock-pickers—managers with genuine skill in differentiating winners from losers across disparate markets and sectors. The pandemic-driven market dislocations, rather than constraining opportunities, have expanded the range of potential winners and losers available for skilled managers to exploit, creating a fertile environment for alpha generation through bottom-up stock selection.
In the merger arbitrage space, Aberdeen's bullish outlook is grounded in surging deal volumes paired with exceptionally attractive arbitrage spreads. Moir emphasized that the volatility characterizing recent market conditions has created an unusually favorable setup for specialized managers. "Some of our managers have seen some of the best returns that they've had in a long time, and I think a lot of that has to do with the volatility in the market causing some pretty attractive spreads," Moir told Hedgeweek. He noted that nimble managers capable of trading tactically around spreads—particularly as they widen due to broader market volatility or deal-specific risks—have been best positioned to capture value. This dynamic echoes historical patterns in which merger arbitrage has performed strongly during recovery phases following volatile periods. Aberdeen cited the exceptional spread opportunities observed in March of the prior year as evidence of the current opportunity set, noting that attractive spreads remain available.
On the equity long/short front, Aberdeen's confidence derives from the strategy's demonstrated resilience and stock-selection capabilities in the pandemic environment. Over the preceding 12 months, equity long/short funds generated returns exceeding 26 percent, establishing the strategy as one of the strongest performers within the broader hedge fund universe. Aberdeen's investment thesis hinges on identifying true stock-pickers—managers with genuine skill in differentiating winners from losers across disparate markets and sectors. The pandemic-driven market dislocations, rather than constraining opportunities, have expanded the range of potential winners and losers available for skilled managers to exploit, creating a fertile environment for alpha generation through bottom-up stock selection.
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