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Technology > Investment Platforms > Turnkey Asset Management

2019 Asset Manager Awards: Westchester Capital Management, Merger Strategy

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Michael Shannon Title: Managing Member, Portfolio Manager, Investment Committee Member Years with present firm: 23 Years in financial services: 31 Investment/asset class focus: Alternatives/Liquid Alts

Roy Behren Title: Managing Member, Portfolio Manager, Investment Committee Member Years with present firm: 25 Year in financial services: 32 Investment/asset class focus: Alternatives/Liquid Alts

Asset Management Firm: Westchester Capital Management Firm’s headquarters: Valhalla, New York Year firm was founded: 1980 Number of employees and/or partners: 18 employees Assets under management/advisement as of Dec. 31, 2018: $3.8 billion

Increased market volatility last year prompted Envestnet to add a new asset class category to the Asset Manager Awards: liquid alternatives. The new award aims to recognize the growth — and importance — of this asset class, especially as the bull market ages, according to Envestnet | PMC Chief Investment Strategist Tim Clift.

The inaugural award went to Westchester Capital Management’s Merger Fund, which is managed by Roy Behren and Michael Shannon, a team that has been together for 25 years.

As Envestnet noted in its analysis, the strategy won “due to its ability to generate strong and positive uncorrelated returns in a period where equity markets were falling and most liquid alternative indices ended in the red. Merger arbitrage was the best performing liquid alternatives strategy, and [Westchester] led its peers.”

The firm itself has been in business for about 30 years, while the strategy began in 1989. It is the first publicly traded mutual fund to practice a “merger arb” strategy, says Behren. “It’s a non-typical strategy for a mutual fund, because it’s a hedge strategy.”

Shannon, who came to Westchester from JPMorgan’s M&A team, believes the fund’s size — $4 billion — provides “economies of scale” in which its portfolio managers “have a decent amount of influence in terms of when we take a position, [as] we tend to be one of the top 10 shareholders,” he says.

As one of the largest shareholders in the companies it owns, the Westchester team interacts with management of its holdings. This “gives [us] an edge in terms of what the probability is for [whether or not] the deal is going to close. When you look someone in the eye, when you hear about all the reasons why the deal is strategically important, it just gives us a little bit of an edge,” according to Behren.

The market neutral strategy — which ended 2018 up 8% — is “intended to provide absolute returns in all market environments, and that was borne out” last year, he explains. The former securities attorney adds that 2018 was the first year since 2009 when the market had “significant changes and volatility increased.”

Shannon points out that “since inception [and over] the last 30 years, we’ve averaged about a 6-7% return a year, which doesn’t sound great when you’ve had the equity and bond markets rally over the last eight to 10 years. But the value [of it] is … when you have market dislocations, like the one last year.”

Envestnet agrees, noting that the strategy has had only three negative calendar years since its launch. “The fund did particularly well in 2018 due to a combination of a strong deal environment and its avoidance or early exit of some prominent broken deals like NXP/Qualcomm.”

Furthermore, the Westchester team has evaluated more than 10,000 transactions and 4,500 corporate reorganizations over three decades. It also has “clearly defined catalysts and an average completion horizon of four to six months.”

Behren sees 2019 “merger activity continuing at a rapid pace.” Plus, he adds, the fund typically “provides a return that’s roughly 300-450 basis points in excess of one’s cost of capital, which would be shorter-term Treasury instruments, and that’s proceeding according to plan this year as well.”

Videos of the award winners can be viewed here:

Profiles of the other individual award winners are found here:


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