Finance:Event-driven investing

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Short description: Hedge fund investment strategy

Event-driven investing or Event-driven trading is a hedge fund investment strategy that seeks to exploit pricing inefficiencies that may occur before or after a corporate event, such as an earnings call, bankruptcy, merger, acquisition, or spinoff.[1] In more recent times market practitioners have expanded this definition to include additional events such as natural disasters and actions initiated by shareholder activists.[2] However, merger arbitrage remains the best-known investment strategy within this group.[3]

This strategy was successfully utilized by Cornwall Capital and profiled in "The Big Short" by Michael Lewis.

History

Event-driven investing "lost on average 1.4 percent in 2015" making them the poorest performers in 2015 despite a record year of mergers and acquisitions partially because funds over purchased only the largest corporate deals.[4]

Healthcare sector

According to James Elliot at Alan Davis Wealth Management, about 60% of event-driven hedge funds' year-to-date gains...making it the strongest contributor by a large margin."[5] According to Dealogic, by August health care mergers and acquisitions (M&A) were up 42%, with "an all-time high of $422.8 billion;" in 2014 the high was $429.3 billion for the entire year and also set a record.[5] New event-driven hedge funds were launched for example, New York–based Kellner had launched event-driven hedge fund, Capital with Chris Pultz and California-based Omni Partners launched event-driven investing funds such as Omni Event Fund with John Melsom as chief investment officer.[6] Melsom noted that by 2015 there was a lot of consolidation in the healthcare sector especially in pharmaceuticals which gave "exceptionally wide spreads." President Obama's US healthcare reforms led to regulatory uncertainty in healthcare.[6] James Elliot's Event Fund returned 34.9% from January through June 2017,

"...helped gains from drug maker Valeant Pharmaceuticals' $11 billion acquisition of specialist drug maker Salix Pharmaceuticals; AbbVie’s acquisition of cancer biotech company Pharmacyclics for $21 billion; and also the decision by US pharmacy benefit manager UnitedHealth to buy rival Catamaran for $12.8 billion."
—Hedgeweek August 2015

Event-driven investing events

There are a variety of strategies that may be used to profit from different corporate events:[7]

  • Merger Arbitrage (also known as risk arbitrage)[8][9]
  • Convertible Arbitrage[10]
  • Distressed investing[11]

References

  1. ↑ "Understanding Event-Driven Investing". Barclay Hedge. https://www.barclayhedge.com/research/educational-articles/hedge-fund-strategy-definition/hedge-fund-strategy-event-driven.html. 
  2. ↑ "Event Driven Investment Strategies - Hedge Fund Strategies" (in en-GB). 2019-06-26. https://mergerarbitragelimited.com/event-driven-investment-strategies/. 
  3. ↑ Spink, Mal (24 February 2020). "Event Driven Investment Strategies". https://mergerarbitragelimited.com/event-driven-investment-strategies/. 
  4. ↑ Hu, Bei (15 November 2015). "Event-Driven Hedge Funds Are The 'Worst Disappointment,' Says K2". Bloomberg. https://www.bloomberg.com/news/articles/2015-11-15/event-driven-hedge-funds-were-worst-disappointment-says-k2. 
  5. ↑ 5.0 5.1 Eschenbacher, Stefanie (7 August 2015). "Healthcare injects life into event-driven hedge funds". Financial News. http://www.efinancialnews.com/story/2015-08-07/healthcare-injects-life-into-event-driven-hedge-funds. 
  6. ↑ 6.0 6.1 "Omni Partners launches Omni Event Fund". Hedgeweek. 16 September 2013. http://www.hedgeweek.com/2013/09/16/189994/omni-partners-launches-omni-event-fund. 
  7. ↑ "Event Driven Investing". https://www.eurekahedge.com/Research/News/1044/Event-Driven-Investing. 
  8. ↑ "An Introduction to Merger Arbitrage". https://www.westchestercapitalmanagement.com/assets/files/2/an_introduction_to_merger_arbitrage.pdf. 
  9. ↑ Kirchner, Thomas (2009-07-01) (in en). Merger Arbitrage: How to Profit from Event-Driven Arbitrage. John Wiley & Sons. ISBN 978-0-470-50811-4. https://books.google.com/books?id=VYCYMZwFmgkC&q=%22event-driven+investing%22. 
  10. ↑ "Event-driven investing explained". https://www.westchestercapitalmanagement.com/event-driven-investing. 
  11. ↑ Jones, Chris (February 2007). "Event-Driven Investing" (in en-GB). https://thehedgefundjournal.com/event-driven-investing/. 




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