Event Driven Funds

Event-driven funds involve investment in the changes in market situations, or events like corporate activities, or a catalytic change. In April 2019, investors redeemed over $1.36 bn from hedge funds as per eVestment, making the overall industry asset to $3.288tn.  Investors have grown an appetite for event-driven in the last year, especially, in Asia and Emerging markets hedge funds.

The year 2018 was challenging for the fund managers who were trying to find the impact of the trade wars in the highly competitive industry. They were trying to find ways to gain from the inefficiencies created by altered market factors. Hedge funds with correlation to the equity markets have been trying to identify those equities and event-driven strategies in the pipeline of exceptional corporate actions. They are trying to analyze the alpha – the historical measure for asset ROI compared to risks. Long short space demand has been increasing in healthcare and technology, and some small cap markets.

Event-driven are strategies on the lookout to exploit pricing inadequacies, which may happen before or after a corporate event, like bankruptcy, merger or acquisition. Technically mispricing created by a temporary event creates an opportunity for the fund managers. This may happen in the case of policy changes. The potential investment will see the underlying value of the company and determine the impact of the event on the price.