event-driven investing
{{Short description|Hedge fund investment strategy}}
Event-driven investing or Event-driven trading is a broad term encompassing hedge fund investment strategies that seeks to exploit pricing inefficiencies that may occur before or after an event. Examples of such events could be an earnings call, bankruptcy, merger, acquisition, or spinoff.{{cite web |url=https://www.barclayhedge.com/research/educational-articles/hedge-fund-strategy-definition/hedge-fund-strategy-event-driven.html |title=Understanding Event-Driven Investing |publisher=Barclay Hedge |access-date=May 8, 2010}} In more recent times market practitioners have expanded this definition to include additional events such as natural disasters, regulatory changes, and actions initiated by shareholder activists.{{Cite web|url=https://mergerarbitragelimited.com/event-driven-investment-strategies/|title=Event Driven Investment Strategies - Hedge Fund Strategies|date=2019-06-26|website=Merger Arbitrage Limited|language=en-GB|access-date=2019-06-27}} However, merger arbitrage remains the best-known investment strategy within this group.{{Cite web|url=https://mergerarbitragelimited.com/event-driven-investment-strategies/|title=Event Driven Investment Strategies|last=Spink|first=Mal|website=MergerArbitrageLimited.com|date=24 February 2020 }}
This strategy was successfully utilized by Cornwall Capital and profiled in "The Big Short" by Michael Lewis.
History
Event-driven investing "lost on average 1.4 percent in 2015" making them the poorest performers in 2015 despite a record year of mergers and acquisitions partially because funds over purchased only the largest corporate deals.{{cite web | url=https://www.bloomberg.com/news/articles/2015-11-15/event-driven-hedge-funds-were-worst-disappointment-says-k2 | title=Event-Driven Hedge Funds Are The 'Worst Disappointment,' Says K2 | publisher=Bloomberg | date=15 November 2015 | access-date=19 December 2015 | author=Hu, Bei}}
=Healthcare sector=
According to James Elliot at Alan Davis Wealth Management, about 60% of event-driven hedge funds' year-to-date gains...making it the strongest contributor by a large margin."{{cite web | url=http://www.efinancialnews.com/story/2015-08-07/healthcare-injects-life-into-event-driven-hedge-funds | title=Healthcare injects life into event-driven hedge funds | publisher=Financial News | date=7 August 2015 | access-date=19 December 2015 | author=Eschenbacher, Stefanie}} According to Dealogic, by August health care mergers and acquisitions (M&A) were up 42%, with "an all-time high of $422.8 billion;" in 2014 the high was $429.3 billion for the entire year and also set a record. New event-driven hedge funds were launched for example, New York–based Kellner had launched event-driven hedge fund, Capital with Chris Pultz and California-based Omni Partners launched event-driven investing funds such as Omni Event Fund with John Melsom as chief investment officer.{{cite web | url=http://www.hedgeweek.com/2013/09/16/189994/omni-partners-launches-omni-event-fund | title=Omni Partners launches Omni Event Fund | publisher=Hedgeweek | date=16 September 2013 | access-date=19 December 2015}} Melsom noted that by 2015 there was a lot of consolidation in the healthcare sector especially in pharmaceuticals which gave "exceptionally wide spreads." President Obama's US healthcare reforms led to regulatory uncertainty in healthcare. James Elliot's Event Fund returned 34.9% from January through June 2017,
{{quote|"...helped gains from drug maker Valeant Pharmaceuticals' $11 billion acquisition of specialist drug maker Salix Pharmaceuticals; AbbVie’s acquisition of cancer biotech company Pharmacyclics for $21 billion; and also the decision by US pharmacy benefit manager UnitedHealth to buy rival Catamaran for $12.8 billion."|Hedgeweek August 2015}}
Event-driven investing events
There are a variety of strategies that may be used to profit from different corporate events:{{Cite web |title=Event Driven Investing |url=https://www.eurekahedge.com/Research/News/1044/Event-Driven-Investing |access-date=2022-11-10 |website=www.eurekahedge.com}}
- Merger Arbitrage (also known as risk arbitrage){{Cite web |title=An Introduction to Merger Arbitrage |url=https://www.westchestercapitalmanagement.com/assets/files/2/an_introduction_to_merger_arbitrage.pdf |website=westchestercapitalmanagement.com}}{{Cite book |last=Kirchner |first=Thomas |url=https://books.google.com/books?id=VYCYMZwFmgkC&q=%22event-driven+investing%22 |title=Merger Arbitrage: How to Profit from Event-Driven Arbitrage |date=2009-07-01 |publisher=John Wiley & Sons |isbn=978-0-470-50811-4 |language=en}}
- Convertible Arbitrage{{Cite web |title=Event-driven investing explained |url=https://www.westchestercapitalmanagement.com/event-driven-investing |website=westchestercapitalmanagement.com}}
- Distressed investing{{Cite web |last=Jones |first=Chris |date=February 2007 |title=Event-Driven Investing |url=https://thehedgefundjournal.com/event-driven-investing/ |access-date=2022-12-06 |website=thehedgefundjournal.com |language=en-GB}}
- Spinoffs
- Regulatory changes
- Pending investigations
- Release of financial information
References
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{{Hedge funds}}
{{DEFAULTSORT:Event Driven Multi-Strategy}}
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