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Event driven


Event driven funds engage primarily in the purchase and short sale of securities of companies involved in substantial corporate changes. This can include events such as:

  • the sale of assets/business lines
  • market entries and exits
  • capital structure changes
  • acquisitions and mergers

Sub-strategies

A distinguishing feature of the event driven style is that it encompasses several sub strategies that have quite different characteristics to one another. However, one factor they all share is that the respective investment opportunities arise through a specific corporate event or change. The most prominent sub strategies are distressed investing, activism and merger arbitrage.


Illust.: Event driven– sub-strategies



Distressed investing

Distressed debt managers purchase and profit from the debt securities of companies that are either already in default, under bankruptcy protection or heading towards such condition. These securities often trade at a significant discount to their par value and are considered attractive because substantial profits can be potentially generated through receipt of a higher settlement during the liquidation process, or by accepting an equity stake in the restructured business.


Activism

Activist fund managers examine a public company, which they consider to be mismanaged, and acquire a managing equity stake of that company in order to actively engage in its management. Their aim is to push for effective management changes and consequently improve the share price of that company significantly.


Merger arbitrage

During a merger arbitrage, an event driven manager may consider buying stocks in a target company and selling stocks in the acquiring company.


Illust.: Merger arbitrage



Once the merger is anticipated, the prices will begin to converge until the deal is announced and the prices align fully. The manager profits from their long positions appreciating in value and their short positions declining in value.

Profitability depends largely on managers' industry knowledge and securities selection expertise and the correct identification and diversification of risks associated with the securities.

Returns are event rather than market driven and as such funds tend to show low correlation to traditional investments.

As with any investment, funds can lose money as well as profit. Investors should always seek professional advice before considering any investment.

Please note some of these investment solutions and/or strategies may not be offered in your jurisdiction or may significantly differ from those offered in your jurisdiction.

Event driven
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