What’s going on here?
Hedge fund managers focused on mergers and acquisitions (M&A) achieved a 7.7% return in the first five months of 2024, outperforming other strategies, according to Goldman Sachs.
What does this mean?
M&A-focused hedge funds have turned their fortunes around. Last year, they faced a negative return of 0.8% from January to May due to high interest rates stifling deal-making, as reported by Barclays. However, this year has seen a resurgence in global M&A, reaching $1.3 trillion in those same first five months – a 23% increase compared to 2023, but still shy of 2022’s $1.8 trillion, according to LSEG data. US-targeted M&A contributed significantly, accounting for 56% of global activity, the highest share since 1998. This rebound is driven by declining interest rates and a stabilizing economic environment, although deal-making hasn’t returned to 2021’s record levels.
Why should I care?
For markets: M&A resurgence fuels market confidence.
The surge in M&A activities is injecting fresh energy into the markets. Hedge funds averaged around a 7% return up to the end of May 2024, with stock trading hedge funds posting a 7.4% return. This uplift, though still below the highs of 2021, signals growing confidence among companies amid stabilizing economic conditions and declining interest rates. Investors should note notable deals like Capital One’s $35.3 billion bid for Discover Financial Services and ConocoPhillips’ $22.5 billion offer for Marathon Oil, which highlight robust corporate activity in the US.
The bigger picture: Gauging the future of global deals.
Despite the upward trend, global M&A hasn’t caught up with 2021’s peak levels. The first five months of 2024 saw $1.3 trillion in deals, a healthy increase from 2023 but still lower than the $1.8 trillion in early 2022. This indicates that while optimism is returning, economic and geopolitical uncertainties still pose challenges. Investors should watch how new economic policies and shifting global dynamics influence the pace and scale of future M&A activities.
