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Event-driven investing

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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

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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

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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

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

References

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  1. ^ "Understanding Event-Driven Investing". Barclay Hedge. Retrieved May 8, 2010.
  2. ^ "Event Driven Investment Strategies - Hedge Fund Strategies". Merger Arbitrage Limited. 2019-06-26. Retrieved 2019-06-27.
  3. ^ Spink, Mal (24 February 2020). "Event Driven Investment Strategies". MergerArbitrageLimited.com.
  4. ^ Hu, Bei (15 November 2015). "Event-Driven Hedge Funds Are The 'Worst Disappointment,' Says K2". Bloomberg. Retrieved 19 December 2015.
  5. ^ a b Eschenbacher, Stefanie (7 August 2015). "Healthcare injects life into event-driven hedge funds". Financial News. Retrieved 19 December 2015.
  6. ^ a b "Omni Partners launches Omni Event Fund". Hedgeweek. 16 September 2013. Retrieved 19 December 2015.
  7. ^ "Event Driven Investing". www.eurekahedge.com. Retrieved 2022-11-10.
  8. ^ "An Introduction to Merger Arbitrage" (PDF). westchestercapitalmanagement.com.
  9. ^ Kirchner, Thomas (2009-07-01). Merger Arbitrage: How to Profit from Event-Driven Arbitrage. John Wiley & Sons. ISBN 978-0-470-50811-4.
  10. ^ "Event-driven investing explained". westchestercapitalmanagement.com.
  11. ^ Jones, Chris (February 2007). "Event-Driven Investing". thehedgefundjournal.com. Retrieved 2022-12-06.


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