Merger arbitrage is a kind of eventdriven strategy, which can also involve distressed companies. The multiple strategies of hedge funds investopedia. Many hedge funds, however, invest in illiquid assets and generate a significant portion of their returns from bearing illiquidity risk. Eventdriven investing is a hedge fund investment strategy that seeks to exploit pricing inefficiencies that may occur before or after a corporate event, such as an earnings call, bankruptcy, merger, acquisition. This pooling of funds means that a manageror group. If the oncedistressed company emerges from bankruptcy as a viable firm, the. In a hedge fund, limited partners contribute funding for the assets while the general partner. Participating in hedge funds as an alternative investment vehicle became. A fund of funds fof also referred to as a multimanager investment is an investment strategy in which a fund invests in other types of funds. Hedge funds are generally considered to be more aggressive, risky, and exclusive than mutual funds. Typically, in merger arbitrage investing, the investor plays long in the shares of.
Because of its use of complex techniques, financial regulators typically do not allow hedge funds to be marketed or made available to. Pdf in this paper we analyze hedge fundsstrategies and their market. An introduction to hedge funds introductory guide gregory connor and mason woo. A better alternative than hedge funds for individual. The risk element arises from the possibility that the merger or acquisition will not go ahead as planned. Hedge fund strategies range from longshort equity to market neutral. Private equitys phenomenal growth has given rise to intense public debate.
Hedge funds are able to purchase distressed debt usually in the form of bonds at a very low percentage of par value. While both practice risk management by combining higherrisk investments with safer investments, the focus of hedge funds on achieving. Hedge fund strategies include longshort equity, market neutral, volatility arbitrage, and merger arbitrage. Moreover, hedge funds share restrictions are easy to identify as they are directly observable from the funds limited partnership agreement and. Merger arbitrage, also known as risk arbitrage, is a subset of eventdriven investing or trading, which involves exploiting market inefficiencies before or after a merger or acquisition. Investopedia is the worlds leading source of financial content on the web, ranging from market news to retirement strategies, investing education to insights from advisors. They are generally only accessible to accredited investors. He merged it with other large steel companies of that time, such as. It can also be run by a separate manager, much like a subadvisor runs a mutual fund that is distributed by a large mutual fund company. Mutual funds are very attractive for an individual. As the first money manager to combine short selling, the use of leverage shared risk through a partnership with other investors and a. Private equity is a nonpublicly traded source of capital from investors who. In conclusion, even if the term hedge fund dates back only to 1949, the hedge fund industry it is one of the fastest growing sectors of the financial services industry. Some complain that private equity essentially is about asset stripping.