Ron Mayers, former National Bank Financial risk arb salesman and internal fund manager, is set to launch an event-driven merger arb fund in Canada that will likely eventually use over-the-counter derivatives. The Montreal-based fund, dubbed Genoa Capital, will be launched in about a month, with CAD100 million (USD64 million) in assets.
Mayers ran an internal fund at National Bank Financial for two years. When he left, the fund was about CAD50 million. Launching an independent fund allows him to do the same work, but hold an equity stake, he said. Mayers stayed at National Bank for two years to establish a track record as a fund manager.
The fund will use cash instruments extensively, and will initially focus on the U.S. and Canada. It will mainly use derivatives to gain leveraged exposure where leverage is required to make a trade pay off. Although the fund will start off using listed equity derivatives, as it gets bigger, it will look to use OTC derivatives to gain access to strikes and exposures not liquid in the listed markets.
Merger arb is an increasingly difficult area in which to invest, noted many equity derivatives marketers. With fewer merger deals going through now, more money is chasing fewer opportunities, leaving a narrower spread between share prices of targets and acquirers for investors to take advantage of. Mayers said, however, that there are still opportunities for knowledgeable investors. He has been working with merger arb in Canada as either a marketer or an investor for a dozen years, and hence knows the market well, he said. Furthermore, although there are fewer merger deals around this year versus last year, there are still more deals to look at compared to, for example, 1997.
