Event-Driven Investors Seeing Opportunities
During the past eighteen months, the tumultuous economic environment has forced many companies to restructure, divest themselves of assets, merge, or search for new business partners. As a result, many hedge fund managers that have been operating event-driven, distressed, and special situations strategies are now seeing prolific returns on their investment models—and alternative investors have taken notice. During the past four weeks, 75 of the 190 hedge fund investors interviewed by BHA analysts expressed increased interest in researching these investment strategies for possible allocation.
A fund of funds based in New York said it is actively seeking new investment opportunities with event-driven funds with the expectation of allocating capital by the end of the calendar year. It will focus on distressed credit and merger arbitrage funds within the U.S. because it feels that the poor economic environment, specifically within the United States, has fostered numerous opportunities for well-performing companies to acquire smaller, more distressed firms, which in turn will offer merger arbitrage funds more opportunity to capitalize on those events.
A large family office based in London that generally seeks liquid investments has recently begun to consider event-driven and credit funds as well. Despite longer lock-up terms, the firm believes that there are considerable opportunities in this space. For credit strategies, the firm is interested in long/short credit and funds with a focus on capital structuring rather than mortgage-backed securities. With regards to event driven, the group has a preference for funds focused on special situations and on those that trade distressed debt. For similar reasons as the fund of fund, the family office believes that special situations funds are in the best position to offer solid returns in these markets, chiefly because economic downturns offer countless opportunities for funds that are positioned to take advantage of mergers, acquisitions, bankruptcies, and capital/credit dislocations within the markets.
The severe economic environment of the past few years has cultivated countless opportunities for savvy alternative fund managers. Sophisticated institutional investors that are eager to identify the upside of the economic downturn are seeking funds that can offer them that exposure.