Hi there,
I am a second year Associate in the M&A group at a top middle market IB in NYC. I am very interested in opportunities related to merger arb both on the buy / sell side. Would be grateful for any help on the following:
1) What exit opportunities are available in this space?
2) What are the pros and cons of each of the opportunities?
3) What is the best way to network with people who are working in this space?
4) Are there any good resources for interview prep?
Thanks in advance.
Hi, I work at an event driven fund that focuses primarily on risk arbs and here are my take on your questions.
Working on the buy-side, I would say the exit opportunities include going back to the sell-side, such as M&A IB, research or moving to other fund. Most of the funds, including my own, that engage in risk arbs also utilizes other strategies such as spin offs, liquidations, distressed and traditional L/S etc. so merger arb is a good skills set to have to bridge the gap and enter into event driven funds with other strategies.
Not sure about the sell-side, but event driven on the buy side is pretty great IMO. One specific concern pertaining to the risk arb strategy you should be cognizant of is that returns of the strategy has been shrinking as arb spreads has consistently decreased over the past 20 years. Whereas annualized arb spreads are double digits in the 80s and 90s, it is now under 5%. Different school of thoughts on whether arb spreads will come back as risk free rates goes up, my guess is it will but the game will still be very competitive and the economics won't return to be as lucrative as it was in the 80-90s.
I live/work in Canada so not everything I say/do will be completely relevant assuming you are in the US. but LinkedIn and ask around, if you are in IB you should be able to gather some buy-side contacts.
Risk arb, despite of increased adoption by hedge funds since the early days, still seems arcane to most people. I suppose this muted both the supply and demand for arb education. There are hundreds of books on L/S investing, but only a handful on risk arbs. Amazon them yourself, I'd say there are less than 10 good books on the subject, read them all if you can. Keep track of the deals that is going on and be able to talk about them (Ie, hurdles to overcome before closing, potential concerns etc)
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