Merger/Risk Arbitrage
How does one land an internship (or FT) with a Merger Arb desk at at a BB like Goldman? 2 years of IBD-M&A and then transition during 3rd year? Any other way? Thanks.
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Yes I am also curious about this one. Also (sorry if I steal your thread partially philisophical monkey), are there desks at banks like Goldman that do medium/ long term investments, like value investing? I read the description Goldman gives about their equities department, and it talked mostly about sales/ trading. However, at the end, it said: "Parts of the division are also responsible for investing the firm’s capital to generate medium-term returns from special opportunities." Is this like value investing/ arbitrage or what? Thanks.
Equities has one full prop desk: GSPS. This is group is a fundamental long short internal hedge fund. They take one maybe two each year who are the top of the sa class. They have been historically involved in the merger arb biz producing such super stars as Mindich and Rubin. The other group that trades prop MA is the multistrat area of SSG. Right now there is one guy on the Relative Value flow desk that trades MA on a prop basis but that is the extent to which there are formal MA trading groups. I think Goldman is not doing FT recruiting this year so there will be no chance of a job if you did not intern there. Lateral hires for the groups happen but are somewhat rare.
all the BB's have an equities prop desk that does some MA
I was speaking about goldman specifically
Goldman has a storied history in Risk arb. This is a really tough environment for risk arb. A lot of deals have blew up, this is a really popular strategy for a lot of hedge funds because its returns tend to be uncorrelated with equity returns. It also is a strategy that you can take very large positions in.
I dont know much about breaking into risk arb but I do know the basics of the underlying strategy itself fairly well. Again I will reiterate what a difficult market we are in right now for risk arb. People have lost a lot of money trading this strategy recently. For those interesting in a more long term fundamental strategy within equities I do recommend checking this out.
If anyone has specific questions I will try to answer, im not an expert but I do understand the basics.
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
Is merger arbitrage very quant? I don't know anything about it really, but one of my M&A directors was teaching me a bit of it the other day, sounded very interesting, but was not nearly as quant as I expected
Risk Arb is all about calculating the correct Return, Risk, and probability in order to get a expected risk adjusted return figure. The math behind it is easy requiring just basic college algebra.
The fundamentals are just about understanding different types of deals in different industries. Understanding the financing behind the deal, and how a judge may rule on antitrust issues.
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
it's all about attention to detail in merger arb. very qualitative. Not the most exciting job IMO.
this princeton girl i know who's at goldman GSPS equity prop told me the majority of what the do is fundamental equity long/short (lot of modeling and talking to mgmt).
Lots of the risk arb process is legal also. It is important to have a grasp of the legal impacts on deals. Also, this merger arb is probably down accross the board with the number of deals that blew up.
On a IB prop risk arb desk is there a complete chinese wall between banking and trading?
www.sharpeinvesting.com
Yes! are you serious? This is the epitome of a situation for which these regulations were established. prevent insider trading on news such as the health of a merger... There is always a chinese wall between banking and trading except in very rare circumstances with extremely specific qualifiers.
This thread is meaningless, use the search function.
http://modernyuppie.blogspot.com/ The musings and antics of a Meathead college wrestler turned asset backed securities trader.
Dude, and the point of your last post was ... ? Relieve unhappiness? Or boredom?
Risk Arb Interview (Originally Posted: 04/10/2015)
I have an interview with a small risk arb fund next week. What are some interview tips or questions that would be handy.
Thanks.
Hi, I would recommend you quickly get hold of Wyser-Pratte's book on Risk Arbitrage. It's the bible in that field and gives you a quick while thorough overview. Moreover, I would look at the big deals at the moment and be able to discuss if and why you would enter what kind of position.
Hope that helps
Risk Arbitrage Groups (Originally Posted: 04/02/2008)
A question for anyone in the industry.
Just out of curiosity.
Which BB's are known to have the strongest risk arb groups?
?
Eric Mindich - Eton Park Daniel Och - Och-Ziff Robert Rubin - US Treasury Secretary Richard Perry - Perry Capital Thoma Steyar - Farallon Capital Eddie Lampert - ESL Investments etc., all did risk-arb at GS...
does GS have a specific risk arbitrage group or do they just do risk arbitrage it in the various subgroups like GSPS and SSG
BUMP
Does anyone know the answer to the last question?
risk arb is a blanket term - you can do event based trading, capital structure plays, or statistical stuff (pairing, volatility arb, etc).
morgan stanley has a really strong rep in the stat area - they did most of the groundbreaking in convergence trading, and David Shaw is an alum of the group. Most types of stat arb favor high frequency trading to take advantage of projected inefficiencies that last for seconds; Shaw's algorithms found opportunities faster and executed at lower cost. in general, stat arb is beta neutral and can be done with any traded good if you can express a view econometricly.
goldman is known for it's event traders - Bob Rubin came to GS as a lawyer and was able to place bets based on his readings of merger terms/credit agreements/etc. it isn't quant-based or trading as you'd think of it - it's all prop, and the research that goes into it can entail IBD-like hours. you won't be doing your own execution. goldman is also solid is stat arb - emanuel derman and some of the major first-generation quants came from there.
downsizing and bail-outs have definitely affected the resources banks can devote to prop. before the crisis, there wasn't a bank that wasn't actively pursuing all of the above strategies because they made money. i'd imagine the quality of risk arb groups will be inversely proportionate to the level of government intervention in the bank.
Bulge Bracket Event Driven Risk Arbitrage Desk (Originally Posted: 02/23/2018)
An opportunity to lateral from IB to the Event Driven Risk Arbitrage desk at my bank recently came across my desk. Problem is I have no idea what they do. I didn't think banks still had desks like that post-Volcker. I don't want to jump to any conclusions, so before I indicate whether I'm interested, just wondering if anyone here knows what this is? It does sound interesting and (potentially) relevant for someone with my background. Thanks in advance...
Hi The Invisible Hand, check out these links:
Or maybe the following WSO members have something to say: d.l Ryan-Murphy12 Pavelk94
If those topics were completely useless, don't blame me, blame my programmers...
Its probably a special sits sales role. These guys spend their days analyzing announced mergers & acquisitions for arb plays and give commentary on it. For example, MCHP announced an offered MCHP this week. The event driven desk will speak with research about the positives/negatives of the deal, speak with institutional investors of both companies and with the merger arb funds. It is important to note that these guys don't trade or take positions, rather they are "experts" and provide info to the buyside. They are paid via trading commissions if/when a merger arb fund makes a play and puts on the trade with your bank.
I don't think what you said really applies in this case. I spoke to them this week. They described the role very explicitly in terms of principal investing (with some flow trading element but that would be secondary). I brought up the whole Volcker thing, and they said it doesn't really impede them. It seems pretty focused on merger arbitrage with some involvement in split-offs and things like that. Not sure if they get involved at all in soft catalyst situations.
I work with those dudes. Prepare to spend your time trading sub rights and M&A situations. If I read it correctly, you get to trade on principal which is awesome for building a track record in the picking pennis in front of a steam roller ;)
Breaking into Risk Arb (Originally Posted: 05/19/2008)
really looking for some advice from traders in terms of getting into a risk arb desk at a BB.
just finished soph year at a semi-target. working on a risk arb desk at a HF currently for an internship. will be joining a BB for ibanking later this summer as well.
so far, i really like risk arb and the science behind the strategy; so its definitely something i am seriously considering.
ideas, contacts, suggestions, anything is appreciated. being realistic, im not necessarily talking about a prop desk, but something that can lead to trading if I do well
thanks
Risk arb is a pretty interesting strategy as a whole. Its nice because it tends to be uncorrelated with equity market returns. As far as placing into a risk arb desk that would be challenging because they tend to place you where they have space. Im aware of a couple BBs that have a risk arb desks but its not that common to have a desk dedicated to it.
Read Risk Arbitrage by Keith Moore if you havent already.
"Oh - the ladies ever tell you that you look like a fucking optical illusion?"
yes it is interesting. but i somewhat disagree with the statement that it is uncorrelated with equity market returns. i would say its generally uncorrelated when the market is neutral/fluctuating or goes up, but can be increasingly correlated in down markets when deal break percentages increase.
there has been some research after Kieth Moore's book was published that compares risk arb to selling uncovered put options - you get small returns with low risk for the most part.. but when deal breaks happen, and especially as deal breaks increases in a bad market, your returns can diminish dramatically
The returns are very negatively skewed (like writing puts). I've never understood how one could execute the strategy successfully w/o inside information.
...but for anyone interested in risk arb this article (by the man of the moment himself) is worth a look:
http://www.iamgroup.ca/eduCentre/articles/The%20Risk%20in%20Risk%20Arbi…
Personally I think this strategy can be successful (see some of Buffett's Berkshire reports for instance) but only when backed by superior infrastructure (legal team, economists etc) or investing opportunistically maybe as part of a broader event driven strategy.
Risk Arb Opportunity (Originally Posted: 03/21/2011)
Sprint Nextel is down 15% intra-day. Wouldn't a mega deal like this in the telecommunications sector (ATT --> T-Mobile) increase the value of Sprint since ATT paid a hefty premium (7x EBITDA)? I know Sprint and Deutsche were in talks for a merger, but it still doesn't make sense to me. I would think this increases the chances of Sprint putting itself on the block and being bought by VZ, etc.
Are any HF analysts at event-driven funds buying S?
Thanks...
I'm not sure I can answer your question but I really hope this deal doesn't go through. This deal will be awful for consumers and will result in there being one single provider for GSM in the US (CDMA is just not an option if you travel). If the deal is struck down, Sprint would bounce back for sure. But if it's ok to have a AT&T/Verizon/Sprint triumvirate (which is completely lopsided), I'd be surprised they ever agreed to a duopoly.
I don't see it as an attractive risk-reward opportunity really. Not enough upside on sprint considering your upside scenario needs a takeover that in itself is speculation. Plus I don't know enough to understand the downside- what sprint is worth on its own if the AT&T mergers goes through. Sprint would have to drop a wayyy more than 15% to get me interested.
Just to clarify, buying S is not a risk arb opportunity ... there's no pending corporate action.
S took off when the rumors started, now it just gave it all back. It was down 13% today, but it's flat MTD. I think there's a high risk Sprint ends up as an also-ran ... it already kind of is.
Sprint got hit because they were the initial name involved in the deal (buying T-mob). GS was advising them. They basically got left behind and now are in a "well what do we buy now" state.
@jqbuyside: I know that its not a risk arb opportunity yet. But there are many funds out there that invest in companies they believe WILL be bought out in the near future for certain reasons.
I also know that they were involved in a merger with T-Mobile.
Eh, whatever.
Risk Arbitrage (Originally Posted: 08/03/2011)
I've been reading a little bit about risk arbitrage and i'm looking to try it out soon. I've been looking at a couple recent deals and noticed that there are always these investigations into the firm being bought out regarding whether the board acted in the shareholders best interest. Two recent example include windstream/paetec and express scripts/medco. Are these investigations normal or is it a serious sign of trouble for the merger?
PM trade4size, he works in riskarb.
From my experience in personal trading it is very common, and the period of time it takes for the deal to get done and close the small spread that remains is why it is called "risk" arbitrage. Many things can go wrong over the period of time in which the deal is getting done, and the result of a broken deal could result in losses far greater than the potential gain. One coal stock I owned (ICO) was bought out by a much larger company (ACI) and the announced price was 14.60 per share. The stock shot up significantly (don’t recall exact number but it was a 69% increase from my date of purchase 3 months prior) and then stayed at about 14.50 for a few weeks. Over that period of time, a very large shareholder in ICO sued the company stating that the shares were sold for too low of a price. I ended up selling my shares instead of tendering them because the 10 cents wasnt ssignificanr enough for me to take the risk, buit the deal ended up going through. That is just one example of a lawsuit and there are many more that may stem, and typically the larger the companies involved, the bigger the spread and the riskier the bet is due to SEC and other investigations that may emerge. Due to fear of monopolies and other things beyond a shareholder's control. So in short I believe that investigations and lawsuits are rather common. Again. this is from personal experience and research, so someone more familiar with the strategy could probably provide more color.
breaking into risk arb (Originally Posted: 07/18/2010)
Are there any roles in risk arb desks for people with banking backgrounds, or do they mostly only hire traders or people with very strategy-specific backgrounds like lawyers and statisticians?
I think you have it backwards. Risk Arb is mostly bankers and lawyers. Risk Arb is a very qualitative strategy and does not get many statisticians.
IBD M&A is prob the best route to get there. or trader
Agreed. M\&A can lead to risk arb.
Farallon capital was founded by a former GS Risk Arb (aka pre-cursor to GSPS) trader who started at MS M&A.
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