“Event Driven hedge fund managers can shift exposures based upon opportunities in: merger and acquisition activity, global market conditions, distressed corporate situations and other corporate activities to produce attractive returns across both short and long term investment horizons,” according to the Credit Suisse Index Co., Inc. “Event Driven hedge funds, as represented by the Credit Suisse/Tremont Event Driven Hedge Fund Index, have historically produced high returns with low levels of volatility. The Sharpe Ratio for the past ten years was 1.26.”
Some of the findings in Event Driven for All Seasons include the following:
- Event Driven hedge funds have returned 15.62%*, making this the top performing sector in the Credit Suisse/Tremont Hedge Fund Index over the past 12 months;
- Many Event Driven managers can operate with flexibility across the entire capital structure, enabling managers to potentially play every aspect of a trade over time, picking spots in a companies’ capital structure where they think the most attractive risk/return positions lie;
- Recently, the growing number of global M&A deals, due to both a consolidation of industries and falling trade barriers, has resulted in a particularly rich environment for the strategy. Further, the increased LBO volume has driven M&A activity, leading to more opportunities for hedge fund managers;
- In a developing trend, Event Driven hedge funds have joined traditional banks as lenders, allowing corporations to assume more debt, refinance their loans, avoid bankruptcy and continue to grow;
- Event Driven managers may apply disciplined hedging and careful portfolio construction techniques. This means that in a year like 2002 that was marked by a severe dislocation triggered by accounting frauds and high-profile bankruptcies such as Enron and WorldCom, Event Driven hedge funds were only down 5.94% compared with the MSCI World which was down 14.19%, and the CS High Yield Index which was down 6.24%; and
- The Credit Suisse/Tremont Event Driven Hedge Fund Index managers have had negative correlation during equity and credit market drops, but have shown increasingly positive correlation when markets rally.
*1Year performance figure from May 2006 to April 2007
Credit Suisse Index Co. industry commentaries and publications are available on the Research page in the News & Press section of our website, www.hedgeindex.com.
Oliver Schupp, Credit Suisse, telephone 212 538 8179, firstname.lastname@example.org
Meg Bode, Bode Associates, telephone 516 869 6610, email@example.com
Suzanne Fleming, Credit Suisse, telephone 212 325 7396, firstname.lastname@example.org
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