Hedge funds increase bets on European M&A as Greek end-game nears

LONDON (Reuters) - Hedge fund managers looking to profit from corporate announcements such as mergers and acquisitions are scaling up their bets in Europe, confident that a resolution of the Greek debt crisis is near and will spark an increase in deal-making.

Traders work at their screens in front of the German share price index DAX board at the stock exchange in Frankfurt, Germany June 9, 2015. REUTERS/Stringer

The corporate world has seen a revival in M&A as cash-rich companies look to put billions of dollars to work by buying in growth in the face of tepid demand in many developed markets.

But while deals are up by a fifth from last year in Europe to $436 billion so far this year -- the highest level since 2008 -- they lag a 47 percent jump in the United States and 60 percent advance in Asia, Thomson Reuters data showed.

A conclusion to the long-running Greek debt crisis, whatever the outcome, would remove one of the big obstacles to deal-making in Europe and unlock billions more in corporate cash.

“The only thing holding us back is this dance still going on for Greece,” said Reade Griffith, co-founder of Polygon, who manages one of the biggest event driven hedge funds in Europe.

A recent Reuters poll indicates a one-in-three chance of a Greece reaching a deal with its creditors.

A government spokesman said on Monday Greece was willing to compromise to reach a deal and is ready to negotiate until the end of June.

Griffith said he has doubled exposure to M&A deals in his $600 million European event-driven hedge fund, part of $1.5 billion his firm manages, to about 40 percent, although he declined to say when the move took place.

Part of a broader industry strategy aimed at making money from major corporate events, these deal-focused funds gained 8 percent as a group through the end of April this year, their best start since 2010, and above the 2 percent gain for their U.S. rivals, hedge fund data provider Eurekahedge said.

“Today we see M&A activity becoming relevant to more than 30 percent of our potential upside return in many cases,” said Luke Lynch, deputy chief investment officer at European hedge fund Oceanwood, which manages $2.2 billion and has closed to new investors.

One of the most popular bets in Europe is Royal Dutch Shell and BG, which Shell has agreed to buy for $70 billion, and the merger of Nokia and Alcatel-Lucent, said Philippe Ferreira, head of research at Lyxor Asset Management.

Energy and power, materials, healthcare, and industrials sector firms have accounted for nearly 60 percent of the deal volume in Europe this year, Thomson Reuters data showed.

That is expected to broaden out. Oceanwood’s Lynch said he expects more deals among content-led media firms and Italian telecommunications tower companies.

Ben Watson, senior investment manager for alternatives at $490 billion fund firm Aberdeen Asset Management said that while U.S. M&A deals still dominate event-driven hedge funds more European deals are emerging.

“Some of the spreads in these European deals are actually very attractive and from a returns perspective people appear willing to allocate more money there.”

John Melsom, who manages $60 million in Omni Partners’ Omni Event Fund, said investors were becoming more confident that the Greek crisis will be manageable.

“If they set a precedent how to manage the Greek situation and keep them in the euro zone, I think that will give people a lot more certainty and you will see a lot more deals.”

Reporting by Nishant Kumar; editing by Simon Jessop and Louise Heavens