Event‐Driven Investing

Event‐driven investment strategies attempt to take advantage of price inefficiencies around company‐specific events. The most popular event‐driven strategies include actions taken in response to corporate actions: mergers and acquisitions; spin‐offs, split‐offs, and carve‐outs; distressed securities; index rebalancing; and capital restructuring events. They have been among the best‐performing hedge fund strategies historically and have gained a lot of traction over the past two decades. Merger arbitrage strategies in particular have shown the best performance on a risk‐adjusted basis, indicating why they are so popular among managers of event‐driven funds. Those who incorporate multi‐event strategies into a diversified hedge fund portfolio have the ability to potentially capture meaningful upside returns that are independent of broad market moves. Successful event‐driven managers must possess vast deal experience, deep industry knowledge, and strong legal capabilities to assess the probable outcomes of a wide range of corporate events.