Hedge funds betting on takeovers and company re-organizations are once again attracting investment in Europe amid the continent’s best start to a year for deal-making since 2014.

Kite Lake Capital Management almost doubled client assets this year, while Everett Capital Advisors nearly tripled its funds since launching in January 2016. The money overseen by Melqart Asset Management has grown 12-fold since the firm started less than two years ago.

The three event-driven funds have $1.5 billion in combined assets and invest across Europe, where an increasingly buoyant economy and record-low interest rates are boosting deal-making. Their resurgence is part of a comeback effort by a hedge-fund industry that’s only now starting to recover from a wave of investor redemptions and years of disappointing returns.

“We like event-driven because there are lots of opportunities for them,” said Philippe Ferreira, a strategist at Paris-based Lyxor Asset Management, which oversees $135 billion and is looking to increase its exposure to the strategy. “Strong M&A volumes are rather good for merger arbitrage. They also have increased exposures to financials, which benefit from monetary policy normalization.”

Event-driven funds handed investors a return of about 10 percent last year, more than twice the gain in the industry as a whole, and another 4 percent in the first five months of 2017, data from Hedge Fund Research Inc. show.

Deal Breaks

While the strategy continued to  make money by betting on company re-organizations and share repurchases, investors were put off in recent years by the collapse of several high-profile mergers and acquisitions.

Deals worth $3.6 trillion were terminated or withdrawn from 2014 through 2016, including Pfizer Inc.’s attempted $160 billion merger with Allergan Plc last year. Billionaire John Paulson’s event-driven hedge fund posted a 14 percent loss following the collapse of Shire Plc’s tie-up with fellow drugmaker AbbVie Inc. in 2014.

“Previous years had been difficult because of some significant deal breaks,” said Karim Leguel, a managing director at JPMorgan Alternative Asset Management Inc., which invests $13 billion in hedge funds.

Fewer Failures

The tide is now beginning to turn, with pulled M&A transactions falling by almost half this year compared with the same period of 2016, according to data compiled by Bloomberg.

This is luring investors back, particularly in Europe, where corporate earnings, faster growth and reduced political risk following elections in France helped boost M&A  volumes to $508 billion this year, up 14 percent from the same period of 2016. Transactions include Johnson & Johnson’s takeover of Swiss drugmaker Actelion Ltd.

Melqart said its assets have grown to $500 million from a launch size of $40 million in October 2015, with the fund making 48 percent for investors.

Kite Lake, which returned 13 percent last year, oversees about $625 million, up from $355 million in December, according to a company official. And the Everett Opportunities Fund said it’s getting closer to achieving the $550 million level at which it plans to shut to new money. The hedge fund made 10 percent for investors last year.

Consultants Cambridge Associates and fund-of-funds 50 South Capital are among other investors seeking to invest in event-driven hedge funds.

Recovering Slowly

Globally, outflows from event-driven funds are slowing, with investors pulling less than $4 billion in the first four months of 2017, compared with about $60 billion over 2015 and 2016, eVestment data show. Investors poured a net $12 billion into hedge funds overall this year, after pulling almost $112 billion in 2016.

Those flows underpin the industry’s gradual recovery from middling performance as the prospect of further rate increases from the Federal Reserve creates more opportunities to make money. Assets managed by hedge funds globally hit a record $3.1 trillion at the end of March. The number of hedge-fund launches rose for the first time in 12 months during the first quarter, and liquidations fell, according to HFR.

The picture for event-driven funds outside of Europe is less rosy, with optimism waning that President Donald Trump will implement reforms that will spur takeovers. European companies, though, have a lot of catching-up to do after their U.S. counterparts went through a wave of transactions, said Michel Massoud, founder of London-based Melqart.

Deals worth $1.5 trillion have been announced globally this year, about 4 percent less than in the same period of 2016. In the U.S., volumes are down nearly 11 percent to $751 billion, though that’s after two strong years when companies spent trillions of dollars on acquisitions, spinoffs and joint ventures.

“Europe has a lot of catch-up to do,” said Massoud. “Corporates are doing better, earnings are growing, with analysts’ revisions trending up.”