Best Event Driven Funds

Are or aren't?

Cant we use critical reasoning and context to assume he meant "aren't"? There are plenty of funds out there who invest assets on an opportunistic basis driven by IPO, M&A activity, global events, scandals, new product launches, etc. that dont necessarily label themselves event driven funds. The strategy only works if you believe in market inefficiencies and the superior knowledge or asymmetrical information.

I was reading a chart recently that compared monthly losses to monthly gains of strategies. Ed funds,averaged out, are expected to slightly lose each month,and was the worst performing strategy on the chart.

Sorry guys, I meant "aren't" - now fixed.

Ed funds seem pretty interesting but the point fhurricane makes is something that I have also found through my research. Initially I was pretty keen on the strategy but the more reading I do the more start to think that they are maybe more sexy than profitable and much of their appeal stems from the post-IB match and my hasty ambitions to be a billionaire. And the returns these merger arb strategies make are very small - especially when you exclude the misleading annualised rates - and risky as! The real money looks like it is in global macro - something a lot harder to get into post-IB and probably way beyond me.

Hmm, a lot of the research i've read (pre- crash) showed ED funds as some of the best-performing. I think the funds who do the best long-term are those that are either agnostic to market conditions (market neutral, stat arb..) or those that take advantage of business cycles (global macro, multistrat ED (so including distressed)).

According to some people, global macro doesn't necessarily exclude ED strategies, but make them one of among many strategies. At some big funds, ED might just be part of a bigger picture.

If you want examples of people who made billions off event-driven strategies, look up Seth Klarman and Dan Och.

I don't think any particular HF strategy can be acclaimed as the 'best'. Some funds have better people than others and will thus outperform over time, some (see at least half of alll HFs pre-2007) are basically run by chancers who are effectively either long vol or short vol and will eventually crash and burn, or at least underperform.

Personally I'd be wary about putting my money in an ED fund due to the high leverage required and thus potential for a catastrophic trade - but that doesn't mean such funds can't be extremely profitable when run by the right fund managers

Djalminha:

I don't think any particular HF strategy can be acclaimed as the 'best'. Some funds have better people than others and will thus outperform over time, some (see at least half of alll HFs pre-2007) are basically run by chancers who are effectively either long vol or short vol and will eventually crash and burn, or at least underperform.

Personally I'd be wary about putting my money in an ED fund due to the high leverage required and thus potential for a catastrophic trade - but that doesn't mean such funds can't be extremely profitable when run by the right fund managers

I gotta disagree. I think event-driven funds make for the best strategy for two reasons:

1. Absolute return
2. Short term profits

These two aspects are paramount in this business as investors are quick to leave if you have even a few consecutive down / flat months. ED works in the hedge fund format because trades generally have an absolute profit with limited downside within a brief timeframe. Another beneficial aspect is that ED has many different strategies within it - merger arb, activist, relative value arb, dividend strategies, capital structure arb, etc., giving a manager a large box to work from. This is how Buffett ran his hedge fund (BPL) and how many managers today emulate it (Third Point, Pershing Square, etc.)

And ED funds do not use a lot of leverage (relatively speaking), unlike quant, global macro or managed futures.