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  • Writer's pictureRobert von Hoffmann

VH Standard Merger Arb Fund - Monthly Letter (December '23)

Updated: Feb 2

VH Standard AM - Monthly Letter (11-23)
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Photo of Winter house in December with VH Standard Logo
VH Standard AM - December Winter

During November, we continued working on our stated goal of compounding completed deals over the lifetime of the fund, as we saw 12 of our portfolio’s deals close, realizing gains on each one. The capital we received as compensation for our positions in the targets’ shares will be recycled into new deals as more M&A is announced in the months ahead.  As always, we will be more focused on the risks related to these new transactions and will continue to look at our investments through the perspective of providing insurance for shareholders looking to guarantee their compensation prior to deal close. If anyone would like to discuss this perspective in more detail, feel free to reach out.

Moving forward, we had a positive gross return of +3.40% for November, which brings our gross returns to +6.38% year-to-date. Net returns for the month were +3.32%, bringing our net return to +5.96% for the year so far. Notably, our position in VMWare (VMW) had a positive month, as the deal closed in its original state before the merger agreement expired, transforming our unrealized loss from last month into a substantial realized gain. Despite completing 12 deals during November, we still believe our portfolio is set to complete a considerable number of deals by year end, in addition to the 33 deals we saw completed during our first 5 months of operation.

With that said, I’d like to discuss a few questions that I’ll be contemplating over the holidays. These questions aren’t directed toward any topic specifically and vary widely within the world of investing; there’s a need to think freely and I find it more useful to have this kind of open mind when trying to challenge my own assumptions. Nevertheless, I hope to have more thoughts to share in the months ahead. These questions on my mind include:

  • Is the strategy more important than the manager?

  • Are there benefits to being brave in merger arbitrage? Does that suggest a lack of discipline?

  • Is it worthwhile having a view of where future interest rates will be?

  • How does leverage impact the merger arbitrage landscape as interest rates rise?

  • How does our relatively unlevered portfolio compete against other levered funds?

  • Will opportunities arise from levered funds mismanaging their risk?

  • What tools can I build to better analyze our portfolio’s risk?

  • Which tools are essential for the portfolio, and which are a distraction from our core competency?

  • Where does merger arbitrage live on the risk spectrum between ‘risk-free’ treasuries, corporate debt, and public equities?

  • Can merger arbitrage serve as an income strategy?

  • At what AUM threshold do we lose the most benefits of being small?

  • At what AUM threshold do we maximize the benefits of scale?

  • At what AUM level do we provide the most value-added strategy for our investors?

  • How do we evolve the strategy while maintaining our discipline and enhancing the value-add?

With the seasonal quiet period ahead, these are the questions that I’ll be thinking about and trying to find some answers. Hopefully, I’ll have something to share in the upcoming letters.

In the meantime, Merry Christmas, Happy Holidays, and we hope you have a wonderful New Year! Try to find time for what’s most important to you.

Thank you for reading. We look forward to continuing to build this portfolio. If you’d like to have a conversation, feel free to reach out.

“Great things are done by a series of small things brought together.” – Van Gogh

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