An Overview Merger Arbitrage

The MMCAP Fund, founded by Hillel Meltz and Matt MacIsaac, is an asset-management firm that employs a number of experienced hedge fund managers. The MMCAP Fund provides clients with a variety of banking and investing strategies, including merger arbitrage.

Mergers and acquisitions between major corporations are perhaps the most significant occurrences that can take place in the world of finance. There are a number of investment strategies based solely around one of these events, such as merger arbitrage. While traditional portfolio managers view a merger in terms of the total, combined value after the deal takes place, merger arbitrage experts focus on the likelihood of the merger actually taking place. While two companies discuss the potential of a merger, the stocks of both entities are sold at a slight discount due to the uncertainty of their respective futures. During this time, merger arbitrageurs purchase an equal amount of stocks in both companies in order to offset risk. After the merger is completed, stocks return to their former price and can be sold for profit.

Merger Arbitrage is a Hedge Fund Strategy

The MMCAP Fund is a Canadian-based fund that focuses on such strategies as merger arbitrage to provide the optimum in a risk-managed return. Co-founder Matthew MacIsaac and the MMCAP Fund staff are dedicated to maintaining a fund account that features maximized returns with a heavy emphasis on risk management.

To even a seasoned trader the concept of merger arbitrage may seem somewhat complicated. The investment practice combines the purchasing and selling of stocks for companies involved in a merger.

Arbitrage itself entails the purchase of a stock on one exchange so it can be resold on another exchange in order to reap a profit. However, in hedge fund investing, the term usually concerns the simultaneous purchase and sale of two stocks whose price is not in alignment with their actual worth.

Therefore, the practice involves selling the “overpriced” shares short and purchasing the stock that is considered to be undervalued. Once the stock prices revert to their actual value, a profit can be realized. Besides stocks, the practice is used to purchase and sell commodities and similar securities.

Merger arbitrage is designed then to take advantage of stock price discrepancies that can happen during a merger as well as during an acquisition or bankruptcy.

MMCAP Asset Management, Investing Today

MMCAP Fund, Inc. is operated by a Canadian management team and offers clients targeted investment pathways with high risk–adjusted returns potential. The firm’s asset management strategy is informed by extensive in-house research and analysis and benefits from communication with company executives and insiders. MMCAP Fund’s neutral market hedging approach exploits market inefficiencies and offers clients the advantage of minimal market exposure. Absolute returns generated through this asset management strategy are independent of market direction.

The Fund’s team of dedicated professionals has particular experience in special situations brought about by little-followed market events such as private placements, capital structure arbitrage, and merger arbitrage. A rigorous risk management protocol includes continuous monitoring to ensure that downside risks, leverage, and concentration are kept within predefined parameters.

Leading the Fund are the founding partners Matthew MacIsaac and Hillel Meltz. Having earned his Bachelor of Commerce at the University of Toronto, Mr. Meltz spent several years with another Canadian hedge fund prior to partnering in his current venture. His corporate responsibilities over the past six years have included roles as Chief Compliance Officer, as Sub-advisor to MMCAP Management Inc., and as Advising Representative to MM Asset Management.

The Fund was featured in a January 2012 Globe and Mail article highlighting firms that have experienced sustained growth and stability throughout a period of market volatility and are now pursuing growth strategies. Over the past year, MMCAP Fund has recruited several experienced financial advisors and analysts from major Canadian investment banks and securities firms to join its asset management team.