Event-driven investing is a hedge fund investment strategy that seeks to exploit pricing inefficiencies that may occur before or after a corporate event, such as an earnings call, bankruptcy, merger, acquisition, or spinoff.
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Event-driven investing strategies are typically used only by sophisticated investors, such as hedge funds and private equity firms. That’s because traditional equity investors, including managers of equity mutual funds, do not have the expertise or access to information necessary to properly analyze the risks associated with many of these corporate events.
This strategy was successfully utilized by Cornwall Capital and profiled in "The Big Short" by Michael Lewis.
Event-driven investing 2015
Event-driven investing "lost on average 1.4 percent in 2015" making them the poorest performers in 2015 despite a record year of mergers and acquisitions partially because funds over purchased only the largest corporate deals.
Healthcare and event-driven investing
According to Philippe Ferreira of Lyxor Asset Management, the healthcare sector — which includes pharmaceuticals — has a sizable exposure to event-driven hedge funds and by August 2015 healthcare had "contributed about 60% of event-driven hedge funds' year-to-date gains...making it the strongest contributor by a large margin." According to Dealogic, by August health care merges and acquisitions (M&A) were up 42%, with "an all-time high of $422.8 billion;" in 2014 the high was $429.3 billion for the entire year and also set a record. New event-driven hedge funds were launched for example, New-York-based Kellner had launched event-driven hedge fund, Capital with Chris Pultz and California-based Omni Partners launched event-driven investing funds such as Omni Event Fund with John Melsom as chief investment officer. Melsom noted that by 2015 there was a lot of consolidation in the healthcare sector especially in pharmaceuticals which gave "exceptionally wide spreads." President Obama's US healthcare reforms led to regulatory uncertainty in healthcare. Melsom's Omni Event Fund returned 14.9% from January through June 2015,
"...helped gains from drug maker Valeant Pharmaceuticals' $11 billion acquisition of specialist drug maker Salix Pharmaceuticals; AbbVie’s acquisition of cancer biotech company Pharmacyclics for $21 billion; and also the decision by US pharmacy benefit manager UnitedHealth to buy rival Catamaran for $12.8 billion."