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Hedge funds: A strategy for all seasons

The event driven hedge fund strategy has fared well during the global financial crisis and, despite a difficult second quarter this year, looks set to continue outperforming other strategies

This article appears courtesy of Global Investor

While extreme market volatility during the global financial crisis saw many investors run for cover and seek a safe haven for their capital, it was also a time that had event driven hedge fund managers rubbing their hands in anticipation of the opportunities in front of them.

The event driven strategy involves investments, long or short, in the securities of corporations undergoing significant change. And there have been no shortage of major changes since September 2008.

Such ‘events’ often provide managers with a tangible catalyst by which they may be able to realise the expected change in value in the underlying security. Substantial profits can be generated by managers who correctly analyse the impact of the anticipated corporate event, predict the course of restructuring and take positions accordingly. Two years later, these opportunities are still being presented thick and fast.

In the first quarter of this year the even driven sector posted returns of 4.8%, according to the Credit Suisse Tremont Hedge Fund Index, which were the best results of any type of fund.

“A lot of first quarter returns were pretty impressive in the event driven space,” Paul McCauley, Portfolio Strategist at International Asset Management told Global Investor/isf.

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