In an effort to elevate the level of discourse, (as all of us olds typically just yell at clouds saying there's no depth here on the forum anymore), I'm pasting in an interesting article from Bloomberg here. I feel a bit conflicted about this because I want to respect their paywall, but (1) young professionals trying to break into this business (who don't have terminals yet) absolutely should be reading all of this stuff for context, and (2) there's no comment section on Bloomberg, whereas I know there are some real experts that circle this watering hole. So what do you guys think? Is this just a puff piece on behalf of a few guys trying to launch? Or the start of a real trend? I'm generally aware that the Lina Khan era was tough on merger arb, but not involved in it day-to-day.
An Old-School Hedge Fund Strategy Reboots Outside Giant Podshops
(Bloomberg) -- Five years ago, veteran hedge fund trader Ed Cooper gave up his independence to join a group of peers betting on corporate deals at industry titan Millennium Management. Now he’s back on his own again.
Cooper is among a slew of portfolio managers opting to run their event-driven strategies outside of the giant firms, as some of the podshops balk at the inherent volatility of the long-time industry staple that wagers on corporate events, including success and failure of deals.
An improving environment for mergers and acquisitions is also acting as tailwind for the departing traders as they set up their own outfits, enticing big-name investors on board to help them make the leap.
“There are certain strategies that fit very well within the big podshops and there are others that are much more challenging,” Donald Pepper, co-chief executive officer and head of multi-strategy at Trium Capital, said in an interview. “Merger arbitrage is one — I don’t really think its natural home is in a podshop.”
Felix Lo, who left billionaire Izzy Englander’s Millennium to start his own event-driven fund at Trium in 2021, has seen his assets under management grow to about $1.1 billion, from just $20 million.
Merger arbitrage funds, a subset of event-driven strategies, gained 5.7% on average through July this year, according to research firm PivotalPath. The returns are already more than they generated in each of the last three full calender years and better than the main PivotalPath Composite Index this year.
Multistrategy firm Millennium saw some high-profile exits in the last couple of years in the event-driven space as deal volumes tumbled to a decade-low. Cooper, Laurent Pujade, Omar Sayed, Jonathan Lowry and Joon Ho Choi, all left the firm between 2023 and early 2025. Sean Murphy departed Citadel around that time as well.
Some of those names are resurfacing now. Cooper is reviving his old hedge fund strategy with cash from multiple big-name investors including Partners Capital and Canada Pension Plan Investment Board. He is initially expected to manage between $400 million and $500 million, Bloomberg News reported this month.
Sayed said he’s incubating his strategy and preparing for launch. Murphy is set to start trading at his new fund with a focus on global long/short equities trading and a risk arbitrage strategy toward the end of 2025.
Elsewhere, former Maven Investment Partners portfolio manager Manuel Blanco is awaiting regulatory approval for his Monaco-based firm. Former Paulson Europe partner Orkun Kilic has resurrected his hedge fund Berry Street Capital Management, running the same strategy he’d shut down a few years earlier amid high interest rates and a challenging regulatory landscape.
‘More Patient’
A lot of multistrategy firms cut risk during a drawdown, Trium’s Pepper said, adding that one of the benefits of starting up a hedge fund is that founders “can attract longstanding investors who can be more patient.”
The optimism around rising M&A volumes comes as good news for these new ventures. Companies have announced nearly $1.1 trillion of transactions since the beginning of June, according to data compiled by Bloomberg. That’s up 30% from a year earlier and the highest tally for this spell since the record-breaking summer of 2021, when the pandemic sparked a deals boom, the data show.
“There’s more activity than meets the eye,” said Oliver Scharping, a senior portfolio manager at Berenberg. “We aren’t getting as many multibillion dollar deals, so the podshops perhaps can’t play so much, but for smaller funds there is nice activity there that’s not showing up in the volume data.”
Making money out of event-driven strategies requires conviction and a lot of patience. It’s at odds with the rules hard-coded into the DNA of most podshops that typically set tight loss limits to achieve the steady returns their investors demand. Such platforms frequently hire and fire traders whose performance has dropped or when a trading strategy goes awry.
‘Going Big’
Berry Street’s founder and Chief Investment Officer Kilic said it’s impossible to run the strategy effectively with 5% draw-down limits, especially in an environment where rates are high. “The only way to make money is by going big when other people get scared, and outside a podshop there is more flexibility to do that,” he added.
In fact, when a deal reaches the point when pods are forced to sell, that often presents a buying opportunity, Kilic said, adding he caps his deals universe to 20-25 situations that he is fully familiar with and waits for something to trigger pricing volatility.
Pentwater Capital Management, for example, stuck to its United States Steel Corp. bet throughout the 18-month saga of Nippon Steel Corp.’s controversial acquisition of the company that divided the US steel industry and became a flashpoint in American politics. The bet, worth more than $1 billion until recently, contributed to a 21% gain for the fund during the first half of the year.
The deal’s exposure to political risk meant many stayed away, Kilic said, adding some of the large multistrategies may have struggled with it. “It’s all behavioral finance,” he said. “But you need to have the right risk limits and ability to size.”
Qube Backing
Despite a challenging fundraising environment for hedge funds this year, the new ventures have managed to get backing, interestingly, from some of the biggest industry names including multistrategy firms.
Qube Research & Technologies has given money to Kilic’s Berry Street as well as Murphy’s Jerpoint. Cooper is in talks with a multistrategy firm for additional cash for his fund.
For some multistrategy managers, allocating externally presents an opportunity to benefit from the event-driven strategy without having to adjust their internal risk controls. Emerging managers, in the meantime, can access a more diversified investor base that may tolerate the volatility. Cooper, for example, has gone from answering to a single stakeholder — Millennium — to having several big-name investors behind him.
“People want the flexibility to manage and grow their own businesses,” said Blanco. Given some large hedge funds are constrained by access to talent, “it makes sense for them to look externally to deploy capital.”
As one of the few full time risk-arb guys on here, I’ll add my piece.
I agree with the thesis of the article - lots of guys have left pods, and are now doing their own thing. I do agree that arbs need different risk limits than normal pods - but this would be hard to implement. More on this later.
But I disagree with the implied reason that “everyone left pods because they couldn’t run their strategy efficiently within the confines of the risk model”. While this wasn’t explicitly said, I think it’s fair to say that it was easily inferred.
WRONG. Arbs aren’t any of these guys swinging 50-200% in either direction year to year as SMs. Arbs still keep it tight. If you click on any of those names of PMs, they all BLEW UP. They didn’t just hit drawdown limits during a deal like X. The deal BROKE. Those guys would’ve got hosed at a SM too.
X is an example of an arb deal where you can’t have super tight risk limits, because if you got stopped out at $29, that’s a bad call by risk management. In hindsight, it was incredibly obvious that Trump was negotiating. A few guys picked up on that early (Pentwater) and got paid.
All this to say - going forward, pods might have to revisit how they approach drawdown limits for arbs to draw talent back. Not to say their isn’t talent at pods now… Lubman’s team at Millenium and the ex- Governors lane guy at Citadel. Some p72 guys too.
Arb is an interesting strategy, because you have to UNDERSTAND it. It’s easier to explain to investors “hey - this looks bad, but we have full confidence that everyone is wrong and we are right and this deal will close in 2 months” than to tell risk “hey guys, I need an extra 2% because Lina randomly sued HZNP for literally no reason and it cost me 13% in that name, but the deal is still going to close. Please trust me”
Pods are too quantitative (for risk arb) in this regard. “You get 4% drawdown limit” doesn’t work for arb. Something like “if a deal breaks, and you drawdown more than 3% in any single deal, you’re gone, OR, if your whole book is down 7%, youre gone” might work better. Will think more on it.
Anyways, I wish those guys the best, and if deal flow stays like it is now, I’m sure we will see more launches.
Edit:
I’ve never worked at a pod, or even talked specifics about limits, so MARB pod guys, correct me if I’m wrong
Also, love the increase in MARB questions on the forum lately, so keep it up! Small (in terms of # of guys), but important, corner of finance. Here for all of your liquidity needs when your name gets taken out!
Hi, i don't know a lot about merger arb yet, but i do hear guys complaining that the thing is highly efficient now and spreads are way too tight ergo not favouring the risk-reward (apart from a small percentage of deals). Is this more or less true? If yes, where does the edge lie? Again, kinda unrelated but would love some colour from you?
Hey man.
A lot of those guys are boomers from the early days, up until like late 1990s.
Back then, no joke, guys were making like 20% year after year, unlevered. It was just a money printing factory in arb. Back then it was all the Goldman guys, Carlson, Gabelli. You can basically trace all arbs back to those guys, and in the last 15 years, Pentwater, Maven, Gov Lane, etc. Almost everyone has walked through one of those doors/“grandkids” of those funds.
Obviously, more people started to want the easy money, so more arbs sprouted and spreads got tighter. These days, it’s no longer an easy living, but it’s still a damn good one. Most arbs I know are eating very well, and of course guys have bad years/get canned, but there is an incredibly healthy sell side and buy side.
I am in the camp that as long as public companies are getting bought, there will be arbs. 99% of professional investors will sell out of a position when a deal is announced, and arbs are the exit liquidity.
As someone who just started covering risk arbs part time, thank you and the poster for talking about this very interesting corner of investing. Curious to get your take on the below.
Leverage is very common in risk arbs nowadays and many spreads are super tight because of it. What do you think about the implications of using leverage in risk arbs? I think pentwater is one of the shops that would bet the house with leverage on situations they like even when spread is tight. Does that mean there’s fewer MARB opportunities for funds that don’t use leverage (like my own)?
Hey.
It really depends on what your shop does. If you just trade the deals that people talk about, you can still make money unlevered.
But if you’re trading the deals that are 6% annualized the day they get taken out on a ticker no one knows, it’s hard to make money unlevered. Example of this is Liberty Charter right now (even though the spin was ez money) KLG,GES, etc.
Pentwater doesn’t necessarily lever into one deal… they just go big in the deals they like, same as HBK. These would have been X, CPRI, ITCI in recent years. I don’t think those guys got caught up in CPRI.
Edit: so to answer your question, yes, it does mean that. Hard to make a living on 6% gross.
Hi, thanks a lot for what you shared, super interesting hearing your perspective on how risk is managed with merger arb. From your experience would you say a lot of these merger arb trades rely a lot on heavy fundamental modelling or is it more sentiment-focused?
Hello. This is an excellent question, and hopefully we get some answers from other guys because I know they’ll be different.
Obviously, fundamentals matter to some extent
But I think that extent is very little the overwhelming majority of the time.
CPRI is an example of where it mattered a lot - definitely the most in recent memory, other than maybe IRBT which was widely telegraphed.
CPRI went from a $35-40 stock pre deal, to a $20 stock on the deal break. AND it went from “no way they block a HANDBAG deal” to “they’re totally gonna block a handbag deal and it’s trading sub-30 on the lawsuit (then guys got hammered AGAIN when it traded up to $40 during lawsuit…think people still in disbelief over handbag deal getting sued, paired with the obvious “the lawsuit went well”
If fundamentals of the business stayed intact - the stock goes from 53 to $35 or $40 compared to $53 to $20. Big difference there
That’s why guys owned HES so heavily. CVX robbed HES back when deal was signed up (see my other comments about Nikos/HBK almost taking down CVX - in other threads I’ve commented on)
If that deal would’ve lost in arbitration, there was a decently good argument that you still would’ve made money - HES fundamentals better than Chevron.
But in a strategy where the most expected outcome happens 95% of the time in deals you look at, they don’t matter all that much.
Until they do, in IRBT and CPRI.
But no, if HD or some big PE shop is buying someone, if they miss earnings by 5-10% top/bottom/wherever, it doesn’t matter. Now if it’s something CRAZY, it does, but I don’t think I’ve seen that yet. CPRI had guys saying “can this business do ANY worse” but was never like “what in the fraud is going on here”.
It really only matters imo for tail risk pricing on a break.
Hope this helps.
Edit: only answered half of your question, but that was the fun half.
It’s more geopolitics and competition law than finance in 90%+ of deals, but the deals where the finance is important are some of the ones where you can make a lot of money.
Very eager to hear other thoughts from the other arbs when they dust off WSO.
Agree with most of what you said, but can't say that it was "incredibly obvious" that Trump was negotiating on X. The whole thing with Trump is his unpredictability. Why would was there a ~5% gross spread when the deal was looking like it would get approved?
Having said that, spreads are incredibly tight at the moment, most new deals are trading close to through funding. What do you like at the moment? :)
Hi - not sure if this is right, but from quick research it looks like “TACO” was coined in May 2025, about the time that X was coming to a head.
I was trying to say that there was a very solid line of thought to get you to deal close, and trump himself touched on these, maybe at the recommendation of some arbs.
1. It was obvious that both Dems and GOP were trying to pander to Pennsylvania, a purple state, by doing something that the politicians thought they would approve of. “Oh, the horror! Japanese buying the LEGENDARY US STEEL! That would never happen! We won’t let the dang Japanese take your jobs!”
2. The next rational thought is “well, the Japanese have money for investments and way better technology for steelmaking, and Nippon Steel is today what US Steel once was. Maybe this deal isn’t so bad for Americans” (through the timeline of the deal, more and more USW were pro -deal, much to the chagrin of CLF and both Goncalves’, who are the CEO and CFO, father son power duo, no nepotism at all there, and no criminal activities either)
3. The following thought - “well how could this TAKE jobs from Americans? Everything is pointing to this INCREASING jobs” (the only ways it takes jobs are 1. They move the mills to Japan, which would never happen, or 2. They import a ton of Japanese people to work on American soil in the steel mills, which, once again, would never happen)
4. You then see through the national security argument, which doesn’t need explaining.
Also, knowledge of Japanese culture was huge, because a deal this publicized literally could not fail.
None of the following is financial advice. I am spitballing and you should assume I do not know what I am talking about if you read further. Do your own due diligence.
As for deals I like, I like VRNA, LBRD spread, FYBR. I really like the rail deal too. That’s a fun one.
Lots of interesting situations, like STAA and CORZ. Wouldn’t be surprised at a bump in both of these situations.
I also think that K will close.
Reminds me, Matt Levine's last newsletter hit on some of this topic.
https://www.bloomberg.com/opinion/newsletters/2025-08-28/pod-shops-are-…
Definitely.
This also (somewhat) refutes MMPM below.
The best deals are like X. Where it trades from $50 to $40 and you get 70% sized to make the $15 up to $55… and then it trades $28 on some BS and you put the whole house on it. The 2023 Levine article “FTC makes merger arb more fun” outlays it perfectly.
Edit: link below
https://www.bloomberg.com/opinion/articles/2023-09-26/the-ftc-makes-mer…
Hilarious that arb guys think they're special and pods need to give them special treatment. Man, size your positions in a way thay keeps you from blowing up.
All of us fundamental guys go through periods of unwind/degrossing 2-3x a year and don't whine about how unfair or "disconnected from fundamentals" the market is. Risk management is part of the job. Adjust your exposures and stop whining.
Interesting take here, and someone aggressive for a typical MMPM post, ha. But I understand where you’re coming from.
We aren’t asking for special treatment. I was saying that we don’t fit the pod model via the nature of our strategy.
There is 100% still a place for arbs in the wider hedge fund space. For pure play arbs, not the guys that do broader event.
All of the best arbs in the world got smacked around by the market the past couple years - but the difference is - most bounced back because most deals end up closing.
The guys that got lit up on CPRI is inexcusable, sure. Those guys deserved to get fired, and I’m frankly surprised that they are able to raise on their own again. Fundamentals fell out the bottom and guys didn’t take the time/literally couldn’t understand the FTCs approach. (And before people assume it’s just Democrat FTC crazies - if my memory is correct, the vote was 5-0, with republicans voting to sue CPRI as well)
We can’t run market neutral books, even with funding shorts. We simply wouldn’t make any money. The average spread in the universe is probably 7% annualized now.
The only way arb works is to have capital that can sit for a while and weather the inevitable storm in some deals.
ATVI, HES, X, HZPN, SGEN, etc
All of these paid out, despite immense pain at one point in the process.
Needless to say, Pentwater’s investors are probably very happy. And yet they were probably down more than 5% at some point last year. Don’t really want to go back through 13Fs, but I don’t think they bottom ticked X and it was a billion dollar position for them. Pods would’ve forced Matt to sell the bottom, which happens in other strategies, but shouldn’t happen in arb from a real-world perspective.
Happy to field further criticism.
MMPM has literally no idea what he’s talking about when it comes to arb. OP here is 100% correct - arb just doesn’t work in a pod model. The way to make money in arb is for the deal to close - that’s the definition of merger arb. The strategy itself is small upside / large downside, high probability of capturing that small upside in most cases.
The reason it doesn’t work in a pod model is because arb is inherently a concentrated strategy with large drawdowns. You can’t just size down your exposure when you only have 2-3 positions because there are only so many large cap deals with spreads. You can’t tell the arb “hey put on x amount of daily vol”. That’s not how it works. Arb has virtually no vol majority of the days. But on some of the days you get outsized moves. So you can’t “fit” the same risk framework into a strategy that’s totally different. I know for a fact Citadel doesn’t mind the drawdowns as much when it’s stupid (see HZNP). But will say that sometimes what’s possible is the MM fires the PM for breaching a drawdown (because that’s just what it is) but then the MM holds on to the position because that’s the right trade. So the MM makes the money in the end and keeps the performance fee on it without having to pay the PM a cut. Again have personally seen that happen.
The reality is talent is going to leave the pods unless you have a seat where they’re flexi about your drawdowns (we all know the two big citadel teams sat through Hess, HZNP, VMW all fine). That’s just the game. It’s widely known anyway that pods don’t like the drawdown nature of the strategy. P72 doesn’t do it. Exodus doesn’t do it. Citadel never did it for the longest time.
It’s a perfect strategy that encapsulates the benefit of duration which pods inherently don’t subscribe to so maybe the answer is that you just don’t do arb at a pod.
It's true that there aren't a lot of deals at a time, which is why all the guys I know that do merger arb within pods do "event-driven", which allows them to look at more situations and diversify the book.
By the way, you don't seem to understand fundamental L/S. Imagine if I went to my risk manager "I'm going 100% net long NVDA and AI trades because it's the right fundamental view, but you can't stop me out when we get a Deepseek-type of drawdown".
In every strategy (not just arb), securities temporarily move widely disconnected from fundamentals or from the long-term trend. If your fund doesn't allow duration, it's your job as a PM to adjust and manage in a way where you don't blow up.
del.
Don’t know him personally, sorry.
Obviously some very big/well known backers and was at millenium for a while til Chinese pharma blew him up…. I find the last part of my prior sentence interesting… but obviously with a Chinese major and living in HK for a bit, that’s his world. I wouldn’t touch any of that with a 40 foot pole, but that’s what we all have jobs, right.
Appreciate it nonetheless mate, really value your insights across the arb space on this forum. Made this burner for obscurity as have also been a long-time follower/contributor to these threads. Would you mind if I dm you on an arb idea (am not in this space right now but considering a jump)?
Guy’s a bit of joke. Echo below guys’ view that it’s crazy he blew up on Chinese pharma lol. Like bruhhhh
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