A brief overview of a hedge fund strategy used in alternative investment markets.

1. Hedge Fund Strategies
Event driven

2. Event driven
Index:
1. Definition
2. Types of events
2.1. Distressed securities
- Risks
2.2. Merger/risk arbitrage
- Risks
2.3. Refinancing
2.4. Restructuring
2.5. Recapitalization

3. 1. Definition
Event driven:
Evolves to profit from significant corporate events as
bankruptcies, recapitalizations, mergers and acquisitions;
The performance is similar that of distressed strategies or
merger arbitrage, depending on the business cycle:
“Corporate Life Cycle Investing”
(Donald & Lacey, 2003)

4. 1. Definition
According Connor & Lasarte (n.d.)
The distressed securities investing and risk or merger
arbitrage are the two main divisions within this
category.

5. 2.1. Distressed securities
Distressed securities strategy focuses on the
securities of companies experiencing financial
difficulties, where it is used, sometimes, to refer to
the securities issued by companies which filed for
credit protection and have defaulted. Some hedge
funds focusing on this strategy are active in the entire
market.
(Connor & Lasarte, n.d.)

6. 2.1. Distressed securities
Risks:
- Buying distressed securities is identical to placing a bet on
the comeback of troubled companies;
- The measurement of restructuring is hard to forecast;
- Typically Volatility and illiquidity on prices for distressed
securities
(for example, during the restructuring, regulators may prohibit the
selling of a company’s stock)
(Connor & Lasarte, n.d.)

7. 2.2. Merger/risk arbitrage
Merger/risk arbitrage: is on the securities of mergers
and takeovers. The target company’s share price
usually carries a ‘bid premium’, a discount to the
proposed takeover price, until the merger or takeover
is finally completed, because of the possibility the
merger may not go through.
(Connor & Lasarte, n.d.)

8. 2.2. Merger/risk arbitrage
Risks:
- possibility that regulators will block the transaction;
- to carry out the purchase, the acquirer could lose
the financial backing.
(Connor & Lasarte, n.d.)

9. 2.3. Refinancing
Refinancing: Refinancing may also be part of a
recapitalization or strategic activity and is an event
typically created by upcoming debt maturities. Where
Corporations may issue lower interest rate securities
or issue new debt or equity in order to extend
maturities.
(Arbitrage Funds, n.d.)

10. 2.4. Restructuring
Restructuring: Events where a company may alter its
balance sheet, purchase, sell, or spin-off assets to
address competitive issues, creditors, business cycles,
or shareholders.
(Arbitrage Funds, n.d.)

11. 2.5. Recapitalization
Recapitalization: by changing the proportions of debt
to equity, the corporation can change its capital
structure. Companies may choose to purchase
common stock by issuing debt, in calmer markets.
Companies may seek to exchange debt for equity in
order to reduce leverage, in distressed markets.
(Arbitrage Funds, n.d.)

12. References
Connor, G. and Lasarte, T., n.d., ‘An Overview of Hedge
Fund Strategies’, International Asset Management;
Donald,E. and Lacey, Jr., 2003, ‘Democratizing the hedge
fund: Considering the Advent of Retail Hedge Funds’, Third
Year Paper, Harvard Law School;
Slides ‘The Arbitrage Event-Driven Fund’, n.d., Water Island
Capital, https://www.arbitragefunds.com