Hedge Funds: ‘Event Driven’ The Flavour Of The Season

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The March 19, 2014 newsletter from Credit Suisse Prime Services Risk & Portfolio Advisory analyst Jon Kinderlerer highlights February as a solid month for hedge fund returns.

Event Driven (ED) strategies were a star performer, appearing in various avatars at the top of the league of February returns as presented below.


Institutional appetite for Event Driven

No surprises then that institutional investors recently surveyed by Credit Suisse are bullish on this strategy through 2014. Investors’ net demand (percentage increasing or considering increasing minus percentage decreasing or considering decreasing) surged to 49% in 2014 from 30% in 2013.

Indeed, the HFRX Event Driven Index is up 2.4% YTD.

The phenomenon also resonates across CS’ own Prime Services Book. “The proportion of equity exposure for Event Driven managers is at the highest level in the last three years,” observes Kinderlerer, referring to the chart below.


What’s working for Event Driven?

According to the analyst, Event Driven, which is composed of a number of sub-strategies, is seeing rotating focus as market conditions change.

“This year within Event the focus has shifted from Credit to Equities and within Equities to Special Situations and Risk Arbitrage,” says the note. “Bloomberg reports US deal flows up over 70% year-on year and our European desk reports a 50% pickup in deal volumes.”

In an interesting observation, the note says that M&A activity, which usually lags the equity market by a year, is now playing catch-up.

In Europe, fund managers are of the view that the Distressed strategy will offer opportunity as companies restructure debt.

Asset flows to Event Driven

In the charts below, note the surge in flows during recent quarters into Event Driven as well as the rise in global hedge fund assets related to this strategy.


Sentiments in favor of Event Driven

The strategy sentiment reckoner below by Credit Suisse ranks Event Driven at the #2 spot in the US and in Europe, and at #10 in Asia.


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