01/
Record levels of M&A activity broadened the merger arbitrage universe, supporting increased capital deployment across a growing number of transactions.
02/
SPAC performance moderated as speculative themes cooled, though elevated SPAC fund raising activity provided ample reinvestment opportunities. High-profile 2026 IPOs may catalyze renewed SPAC activity.
03/
Strong primary issuance expanded our investment universe, we continue to focus on high-coupon, high-delta issuances that offer attractive carry and favorable convexity to the downside.
M&A activity was very strong in Q4, with the most quarterly North American deal activity we have seen in over a decade. Warner Brothers/Netflix led the way with their US$70 billion deal announcement, although it remains to be seen if the Ellison family will ultimately “spoil” that party with a higher bid. We also had a $30 billion deal announced involving Kenvue Inc. (the maker of suddenly-controversial Tylenol) being acquired by Kimberly-Clark, as well as the US$20 billion acquisition of Exact Sciences by Abbott Laboratories.
With the expansion of the merger arbitrage opportunity set, we increased our allocation to the strategy and are currently invested in approximately 40 merger situations.
SPAC returns were muted in the quarter as some of the speculative themes driving common and warrant values (including nuclear power, crypto, MAGA, AI, quantum computing) took a breather. We were able to easily redeploy our earlier SPAC winners as there were 144 SPACs IPOs raising roughly US$30 billion in cash in trust - the biggest year for issuance since 2021.
We are not alone, however, and new entrants into the market have driven IPO terms to less attractive levels. SPAC arbitrage returns are typically positively correlated with IPO activity, with the potential IPOs of SpaceX, OpenAI, and Anthropic being discussed for 2026, we may see renewed activity in SPAC business combinations and a rebound in warrant values.
New issues continued to be the focus for the convertible bond arbitrage strategy. The U.S. convertible bond market finished the year with the highest issuance on record, with US$119 billion in 2025. Even with this massive issuance, demand for new deals was not fully satiated, as deals were still consistently trading up on day one.
Credit spreads remain tight, and the focus has been on high-coupon, high-delta bonds that offer attractive carry and favorable convexity to the downside.
As of December 31 2025 (%) | 1M | 3M | 6M | YTD | 1YR | 3YR* | 5YR* | 10YR* | Since Inception* (Jan 3, 2019) |
PICTON Arbitrage Alternative Fund (F) | 0.04 | 0.73 | 1.49 | 4.01 | 4.01 | 3.67 | 3.24 | — | 5.04 |
PICTON Arbitrage Plus Alternative Fund (F) | 0.02 | 1.07 | 2.34 | 6.68 | 6.68 | 5.16 | 4.99 | — | 8.68 |
(*) refers to average annualized performance
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