Investors look to event-driven strategies when seeking stable returns with the potential for reduced exposure to directional movements in the equity and debt markets. Unlike traditional investments, the performance of event-driven investments is largely dependent on several identifiable variables, as opposed to market conditions.
- Event-driven investments capitalize on distinct, independent occurrences including mergers, acquisitions, tender offers, bankruptcies, and other corporate reorganizations.
- Their reliance on a specific catalyst may reduce correlation with the broad markets, as well as other investments in the portfolio.
Event-Driven Sub-Strategies
Event-driven strategies seek to tactically invest in opportunities diversified across industry, sector, and capital structure with the flexibility to reallocate capital quickly as opportunities are identified.
Merger Arbitrage – Investing in arbitrage opportunities after a public announcement is made.
Special Situations – Investing in transactions that take advantage of the valuation disparities produced by corporate events.
Credit Event – Investing in late-stage bankruptcies where a plan for the company’s securities has been either generally or specifically formulated.
Restructuring – Identifying what we believe is an attractive situation in an attempt to isolate various value-enhancing events.
Event Types
Westchester seeks to identify and invest in corporate events that become attractive as a result of specific economic or market conditions. An understanding of and ability to exploit these cycles in a conservative manner is essential to maximizing risk-adjusted returns.
STRATEGY: invest in firms being acquired, profiting as prices converge to the bid level (higher than the pre-announcement share price.) Asymmetric up/downside (deals fall through).
IMPLEMENTATION: all parts of capital structure, but mostly equity.
STRATEGY: shareholder pressure to drive changes, "create events."
IMPLEMENTATION: typically equity.
STRATEGY: invest around non-standard events (divestments, spin-offs, special dividends, structure/management changes, regulation/litigation).
IMPLEMENTATION: mostly equity; credit may feature.
STRATEGY: e.g., capital structure arbitrage, stub arbitrage, share class arbitrage, thematic "events" such as SPACs, GSEs, MLPs.
IMPLEMENTATION: mostly equity; credit may feature.
STRATEGY: e.g., refinancing companies under stress, buying credit of firms going through bankruptcy, post-bankruptcy equity.
IMPLEMENTATION: all parts of capital structure, but mostly credit.