Private Equity
Andrea Alms Video: Money In Motion 167 - Hedge Fund Market Part 3
July 2025 - Private Equity
Andrea Alms Video: Money in Motion 167 - Hedge Fund Market Part 3
TRANSCRIPT Hello, my name is Andrea Alms. I'm a technology investor and financial manager and this is your money in motion. Hedge funds are alternative investments that pull collected money from a multiple investors in trying to beat the market. These investment vehicles deploy a variety of strategies relative to the use of leverage derivatives. Taking short positions. Generally, hedge fund strategies fall into one of the following categories. Event driven strategies. Relative value strategies. Global macro hedge fund strategies and equity hedge fund strategies. Today, we focus on event driven. Here is an overview of event driven strategies. Merger arbitrage. Convertible arbitrage. Special situations. Activist investing and distressed investing. Merger arbitrage actively pursues M&A. That's merger and acquisition targets to purchase securities of companies subject to mergers or acquisitions at a discount to the offered price.
For example, to trade the premium on the announced acquisition. The investments can be in the form of going long, coupled with a short position and reliance on derivatives for downside risk protection and more. Convertible arbitrage refers to profiting from price inefficiencies between an issuer's convertible securities and its common stock. The strategy is often paired with a long position to the convertible security, with a short and the common equity.
The term special situation encompasses a variety of anticipated corporate events such as divestitures, that is, spin offs, split ups, or carve outs. The securities of the underlying company could be purchased under the expectation of a long term turnaround or profit from a bet on events such as share buyback, credit rating changes, regulatory or litigation announcements and earnings reports.
An activist investor attempts to be the catalyst for change in a company which is typically underperforming and has fallen out of favor with the market. Active engagement of the investor and implementation of recommended corporate changes can lead to high returns. Distressed investor purchase steeply discounted securities, most often in the form of corporate bonds, that is, debt to equity exchange.
In the post restructuring entity, the returns stem from the company's long term turnaround as it emerges from distress or finding capital structure discrepancies, that is, unsecured bonds trading at two steep of a discount compared to the senior secured debt. In the next episode, we take a look at other common strategies. Thank you. This is your money, your money in motion.