In a recent report by Goldman Sachs, it was revealed that hedge funds focusing on mergers and acquisitions (M&A) have performed better than their peers in the first five months of 2024. These M&A-focused hedge funds have seen a return of 7.7% during this period, a significant improvement from the negative 0.8% return in the same period of 2023 when high interest rates were hindering deal-making.
However, despite this improvement, global M&A activity has not yet reached the levels seen in 2021. In the first five months of 2024, the total value of M&A deals worldwide was $1.3 trillion, which is a 23% increase from the same period in 2023, but still below the $1.8 trillion recorded in January-May 2022. In 2021, the value of M&A deals was even higher at $2.4 trillion, according to data from the London Stock Exchange Group (LSEG).
The United States has been a major target for M&A deals this year, accounting for 56% of global M&A activity, the highest year-to-date share since 1998. Some notable deals include Capital One’s $35.3 billion bid for Discover Financial Services in February and ConocoPhillips’ $22.5 billion offer for Marathon Oil in May.
Goldman Sachs also mentioned that hedge funds, on average, had a 7% return on investment by the end of May. Stock trading hedge funds performed even better with a 7.4% return, while hedge funds focused on the relative price of two assets had the weakest performance, returning around 5% for the year.
The performance of the hedge fund industry in 2024 is significant given the various challenges it has faced. In April, the International Monetary Fund expressed concerns about a small number of hedge funds dominating the U.S. Treasury futures market, which could pose systemic threats to financial stability. Additionally, hedge funds have encountered regulatory obstacles, such as the rejection of SEC transparency rules by a federal appeals court in June.
Furthermore, there have been notable shifts in investment strategies within the hedge fund landscape. For instance, Ray Dalio’s risk-parity funds experienced significant redemptions in April after underperforming, leading to a $70 billion decline in these funds from their peak three years ago.
Overall, the performance of M&A-focused hedge funds in 2024 showcases both the successes and challenges within the hedge fund industry, reflecting a complex and ever-evolving market landscape.