Event-driven investing or Event-driven trading is a

hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as ...

investment strategy In finance, an investment strategy is a set of rules, behaviors or procedures, designed to guide an investor's selection of an investment portfolio. Individuals have different profit objectives, and their individual skills make different tactics an ...

that seeks to exploit pricing inefficiencies that may occur before or after a corporate event, such as an

earnings call An earnings call is a teleconference, or webcast, in which a public company discusses the financial results of a reporting period (" earnings guidance"). The name comes from earnings per share (EPS), the bottom line number in the income statement di ...

bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debto ...

merger Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...

, acquisition, or spinoff. In more recent times market practitioners have expanded this definition to include additional events such as natural disasters and actions initiated by shareholder activists. However, merger arbitrage remains the best-known investment strategy within this group. Event-driven investing strategies are typically used only by sophisticated investors, such as hedge funds and

private-equity firm A private equity firm is an investment management company that provides financial backing and makes investments in the private equity of startup or operating companies through a variety of loosely affiliated investment strategies including lev ...

s. That’s because traditional equity investors, including managers of equity mutual funds, do not have the expertise or access to information necessary to properly analyze the risks associated with many of these corporate events. This strategy was successfully utilized by

Cornwall Capital Cornwall Capital is a New York City-based private financial investment corporation. It was founded in 2003 by Jamie Mai, President and Chief Investment Officer, under the guidance of his father, Vincent Mai, who ran the private equity firm AE ...

and profiled in "

The Big Short ''The Big Short: Inside the Doomsday Machine'' is a nonfiction book by Michael Lewis about the build-up of the United States housing bubble during the 2000s. It was released on March 15, 2010, by W. W. Norton & Company. It spent 28 weeks on '' ...

" by

Michael Lewis Michael Monroe Lewis (born October 15, 1960) Gale Biography In Context. is an American author and financial journalist. He has also been a contributing editor to '' Vanity Fair'' since 2009, writing mostly on business, finance, and economics. H ...

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.

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." 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. 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 Barack Hussein Obama II ( ; born August 4, 1961) is an American politician who served as the 44th president of the United States from 2009 to 2017. A member of the Democratic Party, Obama was the first African-American president of the U ...

's US healthcare reforms led to regulatory uncertainty in healthcare. James Elliot's Event Fund returned 34.9% from January through June 2017,

Event-driven investing events

There are a variety of strategies that may be used to profit from different corporate events: *

Merger Arbitrage Risk arbitrage, also known as merger arbitrage, is an investment strategy that speculates on the successful completion of mergers and acquisitions. An investor that employs this strategy is known as an arbitrageur. Risk arbitrage is a type of event ...

(also known as risk arbitrage) * Convertible Arbitrage *

Distressed investing Distressed securities are securities over companies or government entities that are experiencing financial or operational distress, default, or are under bankruptcy. As far as debt securities, this is called distressed debt. Purchasing or holding s ...

References

Hedge funds Stock market {{investment-stub