Event Driven Strategy Hedge Funds – October 2012

by Ross Ford

  • 03 Oct 2012
  • HF

Event driven hedge funds account for 10% of the 6,132 single manager hedge funds currently tracked by the Preqin. Preqin breaks event driven strategies into five sub-strategies: distressed, event driven, opportunistic, risk/merger arbitrage and special situations. The 2008 global financial crisis created more opportunities for event driven strategies; as a result, event driven is the leading market benchmark strategy over a three year period, with an annualized return of 11.09% as of 31 August 2012.

Pure event driven strategy funds make up a significant proportion (43%) of the funds in the event driven strategy category. Distressed is the next most common strategy with 27%, and special situations funds account for 17% of all funds in the event driven strategies category. Risk/merger arbitrage and opportunistic strategies account for the remaining 13% of funds using an event driven strategy.

North America is the favoured location for event driven funds, with 67% of fund managers with an event driven strategy based in the region. Twenty-two percent of these fund managers are based in Europe and 11% are based in Asia and Rest of World. The Cayman Islands is the most preferred domicile for event driven funds, with 46% of all funds domiciled there. Delaware is the second most favoured domicile, with 38% of event driven funds based in the state. With 84% of all funds domiciled in Cayman Islands and Delaware, it is no surprise to see that the third most favoured domiciled, British Virgin Islands, only represents 4% of all even driven funds.

Single-manager event driven strategy funds have a mean management fee of 1.62% and a mean performance fee of 19.41%. Event driven funds often have a focus on long term investing; Preqin data shows that event driven strategy funds have an average lock-up period of 11 months, as opposed to 6 months for all single-manager hedge funds. Distressed hedge funds charge some of the lowest fees of any strategy, with a 1.59% management fee and an 18.91% performance fee, but they have the highest average lock-up of any strategy, with an initial lock-up period of 15 months.

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