Excerpts from “A Positive Turn of Events” by Kris Devasabai – Hedge Funds Review, 2/2/10
Investors are showing renewed interest in event driven hedge funds that aim to profit from the uncertainty surrounding corporate events such as mergers, acquisitions, spinouts and bankruptcies.
More than half the $13.8 billion in new capital allocated to hedge funds in the final quarter of 2009 was invested in event driven strategies, such as merger arbitrage and distressed debt funds, according to Chicago-based Hedge Fund Research.
So long as debt markets continue to improve, M&A activity will remain robust through 2010, adds Alex von Furstenberg, co-portfolio manager at Arrow Capital Management, a New York-based hedge fund that invests in event driven situations.
“Our analysis of balance sheets outside the financial sector suggests that many companies remained conservatively capitalised during the crisis and have sufficient resources to make accretive acquisitions or to be attractive buy-out candidates,” he says.
Arrow Capital Management has always taken an opportunistic approach to event driven investing, says von Furstenberg. “Our mandate has never been to purely focus on spin-offs, distressed or merger arbitrage trades. We have invested in those situations only when we believed they had the best risk-reward characteristics,” he says.
He says Arrow is currently focused on what it sees as the mispricing of strong, multi-national companies, rather than traditional event driven opportunities. “In our opinion, the valuations of some high quality companies still do not reflect the strength and sustainability of their earning power, especially those companies with exposure to developing markets such as Brazil, Russia, India and China,” says von Furstenberg.
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