Event-Driven Is The New Black

May 30 2007 | 11:10am ET

Event-driven funds have been the place to be over the past year, and may stay that way for a long time to come, according to a new report from Credit Suisse.

Event-driven funds—which include distressed, multi-strategy and risk arbitrage funds—have returned 15.62% over the past 12 months, the best of any strategy tracked by the Credit Suisse/Tremont Hedge Fund Index. But, more importantly, the strategy has proven itself in both bull and bear markets: According to CS, event-driven managers have been negatively correlated to the market when it’s falling, and are increasingly positively-correlated during market rallies.

“Event-driven hedge fund managers can shift exposure based on 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,” the report said. “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 for the past 10 years with a Sharpe Ratio of 1.26.”

The report, “Event Driven For All Seasons,” credits event-driven managers’ nimbleness—their careful risk management and ability to play every aspect of a trade—for the strategy’s success. The increasing volume of M&A activist, of course, hasn’t hurt. And with the success, the report notes, has come a massive influx of new assets.


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