Alts Democratized: A Practical Guide to Alternative Mutual Funds and ETFs for Financial Advisors, + Website

Chapter 8Alternative Event-Driven Funds

Synopsis

Alternative Event Driven Funds typically involve merger arbitrage strategies, and are affected by cyclical changes in deal flow and merger premiums. Most funds offer uncorrelated returns that can diversify portfolios, while other funds may be suitable as equity complements. The risk/return profile for these funds is driven partially by exposure to equities and credit spreads, depending on how the fund is managed. Bottom-up research will help advisors identify the factors driving each fund, and identify the managers who have the skills and process to invest successfully based on the outcomes of corporate mergers, acquisitions, and other corporate events.

Definition

Funds that, by prospectus language, seek to exploit pricing inefficiencies that may occur before or after a corporate event, such as a bankruptcy, merger, acquisition, or spinoff. Event Driven funds can invest in equities, fixed income instruments (investment grade, high yield, bank debt, convertible debt and distressed), options and other derivatives.

Definition of the Lipper classification: Alternative Event Driven Funds

The Alternative Event Driven Funds classification exploits pricing inefficiencies around corporate events, enabling hedge fund managers to capitalize on mergers and acquisitions, bankruptcies, spin-offs, and corporate reorganization deals. Funds in this classification use a range of strategies to capitalize on corporate events, and merger arbitrage ...