Event driven and merger arbitrage strategies

By |2014-02-09T10:46:15+00:00February 9th, 2014|alternative strategies, Cerno Capital Posts, Other Posts|

A variety of factors have held back returns from event driven strategies since the 2008 financial crisis. We believe that the underlying forces which determine corporate merger and arbitrage (M&A) activity are beginning to align very well and the consequences of a return of enthusiasm will boost the performance of such strategies. Cerno Capital is allocating 8% of portfolio assets to global specialists who invest around announced corporate events and acquisitions. Event driven investing encompasses a variety of strategies that all have one theme in common: organisational change. This can be in form of special situations, such as spin-offs, breakups and industry consolidations; arbitrage, evoked by mergers, exchange and tender offers to name some examples; and distressed situations such as bankruptcies, liquidations and restructurings. An event driven manager considers the fundamentals of businesses and industries to anticipate, provoke and take advantage of such situations by investing across the whole capital structure. Position size tends to hinge on a probability based analysis of various pay-offs under all possible scenarios. As an investing strategy, merger arbitrage performs best within expanding economies with healthy corporate activity. Since 2008, global corporations have delivered and accumulated great amounts of cash on their balance sheets. Despite [...]