Hedge funds that make money from M&A arbitrage are set to benefit amid signs that the deal activity is beginning to recover after 2023 turned out to be the sector's worst year for a decade, with deal volume totalling just $2.9tn, according to a report by Bloomberg.

The report cites data from Goldman Sachs Group as revealing an uptick in volume towards the end of last year reflecting the strongest level of activity since the beginning of fee current rate hiking cycle with $869bn of deals in Q4. And according to data from Hedge Fund Research, some event-driven hedge funds also surged in December having endured a difficult year.

Funds to see a revival in fortunes include Michel Massoud’s Melqart, which reversed its first-half loss of 4.4% to end 2023 with a 16% gain, and Kite Lake's special opportunities fund, which recovered from having lost 5.5% through May to post a 10.7% gain, according to Bloomberg's unnamed sources.

CastleKnight, an event-driven equity and credit firm started by Appaloosa Management alum Aaron Weitman, meanwhile recorded a 16.5% gain from 2023, having been down 6.5% at the end of May.