01/
Special Purpose Acquisition Company (SPAC) arbitrage continued to deliver strong results, supported by increased deal activity and selective redeployment into new issues trading near or below trust value.
02/
Large-scale transactions and renewed regulatory confidence supported solid merger arbitrage gains, although spreads have tightened due to lower perceived deal risk.
03/
Active participation in strong primary issuance and disciplined positioning in synthetic structures drove continued positive returns.
The SPAC strategy continued to generate strong arbitrage returns. Business combination activity continued to accelerate in the quarter, with 24 new de-SPAC transactions announced. Unsurprisingly, the excitement around Digital Asset Treasury companies faded from the second quarter (see our Q2 commentary). However, we believe SPACs are flexible vehicles and sponsors found success announcing transactions in the neocloud, nuclear power, and quantum computing industries. While these areas remain speculative in nature, we believe these themes are more sustainable than the cryptocurrency financial engineering of Q2. We had multiple SPACs and SPAC warrants trade up significantly on their business combination announcements; these positions have been harvested and the capital redeployed in new issues trading at, or below, cash in trust.
There were 34 new SPAC issues in the quarter, raising approximately US$ 8B in trust proceeds. It is notable that Chamath Palihapitiya, one of the most well-known SPAC sponsors from the past, came back to the market for the first time since 2020. With the strong returns generated in SPACs year to date, we are beginning to see initial public offering terms become less investor friendly.
The merger arbitrage strategy was also solidly profitable in the quarter. The initial thesis of Trump being much more open to merger and acquisitions (M&A) than the previous administration, while delayed by the tariff policy in Q2, is now proving correct. A US$90 billion rail merger (Norfolk Southern by Union Pacific, announced in July) would have been unthinkable in the Biden era. The largest leverage buyout in history - Electronic Arts being acquired by Silver Lake, the Saudi Public Investment Fund, and Affinity Partners – was announced at the end of quarter.
While we are pleased to see robust M&A activity, it is important to note that these large deals have not closed and are still subject to regulatory reviews. Commensurate with lower perceived deal risk, we have seen a narrowing of arbitrage spreads over the last couple of quarters.
The convertible bond arbitrage strategy has largely been focused on new issues, where activity has been very strong. Many of these new issues are immediately trading up two or three points in the secondary market, generating potentially an attractive and immediate return on capital. Aside from new issues, credit spreads remained tight and we are increasingly focused on deploying capital into synthetic put profiles.
As of September 30 2025 (%) | 1M | 3M | 6M | YTD | 1YR | 3YR* | 5YR* | Since Inception* (Jan 3, 2019) |
PICTON Arbitrage Alternative Fund (F) | 0.55 | 0.76 | 2.24 | 3.26 | 4.02 | 3.86 | 4.83 | 5.12 |
PICTON Arbitrage Plus Alternative Fund (F) | 0.98 | 1.26 | 3.80 | 5.55 | 6.36 | 5.47 | 8.08 | 8.85 |
(*) refers to average annualized performance
This material has been published by Picton Mahoney Asset Management (“PMAM”) as at October 10, 2025. It is provided as a general source of information, is subject to change without notification and should not be construed as investment advice. This material should not be relied upon for any investment decision and is not a recommendation, solicitation or offering of any security in any jurisdiction.
Commissions, trailing commissions, management fees, performance fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Alternative mutual funds can only be purchased through a registered dealer and are available only in those jurisdictions where they may be lawfully offered for sale.
There is no guarantee that a hedging strategy will be effective or achieve its intended effect. The use of derivatives or short selling carries several risks which may restrict a strategy in realizing its profits, limiting its losses, or, which cause a strategy to realize or magnify losses. There may be additional costs and expenses associated with the use of derivatives and short selling in a hedging strategy.
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