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This has been a challenging year for merger arbitrage with multiple widely followed deals like Capri (CPRI) failing. Beyond the hit to my personal portfolio, I also saw the impact on the professional investors I follow who focus on risk arbitrage. When I first started this series of articles, I was tracking eight funds but one of them closed shop and I am dropping one more this quarter because their portfolio is more diversified and not concentrated in their top 10 positions. A third fund saw their concentration in the top 10 positions drop to 46% but I am going to retain them for now.
I am also starting to see increased reliance on options to either hedge positions or juice returns as well as some style drift. One of them started a new position in Vestis (VSTS), the company that was spun out of Aramark, although to be fair there was a rumor in September that Vestis might get acquired.