Man Group has downgraded its outlooks on merger arbitrage and long/short credit from positive to neutral due to tightening spreads and regulatory challenges.
“The shift in central bank policies indicates a transition to a new market phase, focusing on economic slowdown rather than inflation,” said Adam Singleton, CIO of external alpha in Man’s solutions unit. “This requires careful navigation and strategic positioning.”
He said the overall outlook remains broadly positive, with “continued opportunities” across different hedge fund strategies. “We maintain a cautiously optimistic stance, adapting to ongoing market dynamics.”
Despite higher deal volume in 2024, tightening spreads have adversely impacted the average downside/upside ratio of the merger universe, said Man.
UBP said performance expectations for event-driven strategies “remain muted for those market-neutral approaches more dependent on deal flow” and was neutral on the strategy overall.
The Swiss investor recommended the deployment of a range of event-driven approaches combined. “Multi-strategy event-driven funds are currently preferred given their ability to pivot between sub-strategies depending on the most compelling deal opportunities, rather than concentrating on just one strategy.”
Across all strategies, it is most positive on systematic multi-strategy and systematic short-term as well as convertible arbitrage, credit long/short and fixed-income relative value.
“Our outlook aligns with previous reports,” reported UBP. “In equity L/S, we prefer low net exposure managers and sector specialists like Japan. Rates easing should boost Macro and EM strategies via bond and FX opportunities, while fixed income arbitrage may gain from a shift away from inverted yield curves.”