Biding their time

November 01, 2011  

With few mergers or defaults, funds that trade on corporate change have little to do

By Kit R. Roane

Illustration: Joe McLaren
Event-driven funds pitch themselves as being less correlated with the vicissitudes of the market than other hedge fund strategies, as they can cash in on mergers when times are good and profit from corporate distress during downturns.

But the uncertainty of a volatile summer and the ensuing choppy markets have closed off many traditional sources of investment for these funds. Although it is still up by more than 5 percent on a 12-month basis, the AR Event Driven Index has fallen by 8.11 percent this year, making it the worst-performing strategy in the database by far. Event-driven funds lost a hefty 4.42 percent in August and another 4.71 percent in September.

Such losses by event-driven funds are particularly troubling because these funds seemed to offer great promise at the start of the year. In 2010, the AR Event Driven Index rose...

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