As at June 30, 2025
Arbitrage Commentary
01/
The PICTON Arbitrage Alternative Fund Class F returned 1.47%, and the PICTON Arbitrage Plus Alternative Fund Class F returned 2.51% in Q2 2025, with all three sub-strategies contributing positively to performance.
02/
Special Purpose Acquisition Company (SPAC) arbitrage was the strongest contributor in Q2, driven by enthusiasm around high-profile de-SPAC announcements. SPAC issuance also picked up meaningfully - allowing the strategy to deploy more capital.
03/
Regulatory trends remained merger-friendly. The strategy also capitalized on attractive deal structures like subscription receipts, which generally offer favorable risk/reward when paired with common share shorts.
Arbitrage performance was largely dominated by the SPAC sub-strategy in the second quarter. Cantor Equity Partners’ proposed business combination with Twenty One Capital Inc, a bitcoin treasury company, ignited the SPAC market when it traded up over 400% (at peak). This is one of the best performing de-SPAC announcements in history and serves to highlight the valuable optionality inherent in the SPAC structure. While we struggle to understand investor demand for bitcoin treasury companies trading above NAV, we are happy to have asymmetric upside exposure to them via SPACs. Aside from crypto, we have seen some recent SPAC successes in AI and MAGA-themed business combinations.
As a result of the success of Cantor Equity Partners and other announced (or speculated) business combinations, SPAC warrant values have increased. In general, warrants are what drives higher potential arbitrage returns in the SPAC sub-strategy. In addition, we’ve been able to deploy significant capital into the strategy in the second quarter as a result of an increase in new SPAC issuance.
On the merger and acquisition (M&A) side, the most notable event in the second quarter was the Department of Justice’s settlement of its suit against the Hewlett Packard Enterprise’s acquisition of Juniper Networks Inc. This continues the trend of more straightforward merger reviews that we’ve been discussing since the November presidential election. In the words of The Capitol Forum, this is the “most concrete example yet of the administration’s increasingly business-friendly approach”.
Another notable M&A transaction is the issuance of approximately US$2 billion in subscription receipts by Keyera Corp. for their acquisition of Plains Midstream Canada ULC. Subscription receipts, when paired with a short position in common shares, have historically offered one of the best risk/reward arbitrage trades in our opportunity set because they tend to have a higher success rate and less downside risk.
The Picton Mahoney Fortified Arbitrage Alternative Fund Class F returned 1.00%, and the Picton Mahoney Fortified Arbitrage Plus Alternative Fund Class F returned 1.68% in Q1 2025, with all three sub-strategies contributing positively to performance.Merger arbitrage was a notable driver of returns, benefiting from the successful completion of several large deals during the quarter. Additionally, market volatility in early April led to more attractive deal entry points, with spreads widening without a corresponding rise in deal break risk.Our SPAC allocation also contributed positively, though to a lesser extent than merger arbitrage. A few announced deals traded at premiums to trust value, helping boost returns. In parallel, warrant values saw a modest recovery, and the Treasury-backed trust structures provided a cushion during market turbulence.Finally, our small position in high-delta (deep in-the-money) convertible bond arbitrage added value as the market sell-off created opportunities for premium expansion. These synthetic puts continue to serve as a valuable component of the strategy, offering attractive downside protection during periods of market stress.
As of June 30 2025 (%) | 1M | 3M | 6M | 1YR | 3YR* | 5YR* | Since Inception* (Jan 3, 2019) |
PICTON Arbitrage Alternative Fund (F) | 0.35 | 1.47 | 2.49 | 4.19 | 3.96 | 5.37 | 5.21 |
PICTON Arbitrage Plus Alternative Fund (F) | 0.49 | 2.51 | 4.23 | 6.38 | 5.63 | 9.22 | 9.00 |
(*) refers to average annualized performance
1 Picton Mahoney Fortified Arbitrage Alternative Fund and Picton Mahoney Arbitrage Fund.
This material has been published by Picton Mahoney Asset Management (“PMAM”) as at July 9, 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.
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