Transcript Name of Fund -

Event Driven Investing
Made Easy
THIS DOCUMENT SHALL NOT CONSTITUTE AN OFFER TO SELL INTERESTS IN ARBITROPTION CAPITAL MANAGEMENT, LLC
OR A SOLICITATION OF AN OFFER TO PURCHASE SUCH INTERESTS. ANY SUCH OFFER SHALL ONLY BE MADE PURSUANT
TO A DEFINITIVE PRIVATE PLACEMENT MEMORANDUM. THE TERMS DESCRIBED HEREIN ARE SUBJECT TO CHANGE.
1
2
Definition
impactI need
First,
attached
to to
beato
felt
specific
clarify
and it’s
what I mean
process
difficult
towhose
estimate
when
duration
Ithe
say
event-driven
can
magnitude
be estimated
ofinvesting.
the impact.
and,
This isa not
third,
creator
the sort
of value
of
thing that’s
which
can be
based
estimated
on an
Please
move
emailtargeted.
and
you
get forward
from to
slide
3,
Contrasting
someone who wantsWith
you
Other
Investing
to invest
in underThese
Strategies
events
specifically
developed
Australian
do
not
include
real estate or atrading
Nigerian
based
on insider
bank account.
When I
information
or making an
say event-driven
investment
based
on a
investing, I mean making
fundamental
expectation
a specific investment
that
a stock
based
on anisexpectation
underpriced
to
that value willrelative
be created
some
trend
that
could
by a publicly disclosed
impact
it atevent.
an unknown
corporate
future
point.
If, for
Examples of these
example,
you
believed
events could include
that
the
Japanese
acquisitions, litigation
nuclear
disaster
was
outcomes,
mergers,
going
to
have
an
impact
regulatory decisions,
on
the
use
of
nuclear
recapitalizations,
power
in Germany,
restructuring,
specialthat
trend
would
not
meet the
dividends, or spin-offs.
threshhold
of
being
an of
Please note that each
event-driven
investment
these types of events is,
because
it’s stillinvery
first, disclosed
a public
uncertain
how long
it
announcement
like a
would
take
for
that
press release, second,
Press [ENTER] to Advance
Event-Driven Investing
Characteristics
Publicly disclosed
Estimable timeframe
Estimable terminal value
Does NOT include:
Insider trading
Speculation based on macro trends
3
Contrasting Event Driven With
Other Investing Strategies
volatility.
This
curious,
is a you
complicated
Just
can
forfind a
chart. Indescription
detailed
reference,
the
volatility
interestisofof
not
providing
each
inherently
strategy
the
bad,
most
on
but
the
useful
it can
last
information,
slide
generate
of this
ulcers
presentation.
though,
for folks
it
had to
who
monitor
be done
their
this way.
Suffice
If
investment
you click
it toto
performance
say,
advance
this
chart
the
on
apresentation,
monthly
shows the
or daily
relative
we’ll
performance
make
basis.
some room
of sixon the
distinctand
graph
investment
bring in a
strategies
black
Please
line
move
that
since
forward
represents
the start
to
of 2006.
the
slide
historical
4, Risk
As you
Tolerance
can
see, Your
performance
and
the dark
Investment
of
blue
theline
represents thestrategy.
Event-Driven
Horizon
Global
Macro
Not
as investment
strong as Global
strategy,but
Macro,
which
Event-Driven
profits
from shows
also
accurately
less volatility
predicting
and
substantial
the effects of
political trends and
outperformance
relative
global
to
the other
macroeconomic
investment
events andpresented.
strategies
has been the
strongest performer.
The pink
One
moreline
click
represents
to
the Dedicated
advance
the presentation
Short Bias
strategy,
will
bring which
out ourrelies
last set
on
detailed
of
data for
individual
this chart.
company
This
newest
research
line shows
to
identify
the
performance
companies
of with
the
weak500
S&P
cash
over
flowthe
and
same
has
been the weakest
timeframe.
The S&P
strategy
500
showed
since 2006. If
you’re
tremendously
greater
Press [ENTER] to Advance
4
Risk Tolerance &
Investment Horizon
investment
When
return
principal
demographic
you
of the
ofconsider
15%
horizon.
event-driven
trend.
or more
In
One
whether
investing
in
reality,
should
a given
also
you’re
Event-driven
strategy
year.
bear
not
Ifinyou
ismind
Investing
7.6%
could
restricted
John
Maynard
in
split
any
is
to
your
appropriate
given
choosing
Keynes’
money
year.
for you,
For
between
just
wisdom,
purposes
between
you
however,
Investment
need
Investment
of to
which
first
A
consider
comparison,
and
A
is
and
that
Investment
Investment
in the
yourlong
the
risk
B10
run,
toyear
B
–
tolerance
US
meet
instead
we’re
Treasury
your
allyou
dead.
and
goals,
have
note
investment
On
what
choices
that
needs.
currently
would
that
happy
range
you
note,
Ifpays
you
from
would
I’dclick
3.2%
observe
foreign
choose
toper
advance
year.
to
small-call
that
do?
event-driven
Of
If the
course,
you’d
to USchoose
large to
presentation,
historical
put
cap,
investing,
100%
with fixed
performance
of
with
your
you’ll
a
income
volatility
money
bring
is
notInvestment
in
securities,
that
a an
pie
falls
accurate
chart
somewhere
commodities,
that
A,indicator
Eventshows
thefuture
of
Driven
real
between
distribution
estate,
Investing
performance
thatand
ofof
the
diverse
is
historical
…so
probably
trading
general
thestrategies
equities
whole
not
annual
a suitable
point
market
returns
thrown
is
of for
interesting
investment.
in
and
anthat
event-driven
good
of but
investment
measure.
If, unreliable.
on the By
investing
other
maintaining
grade
hand,
fixed
strategy.
income
you’re
a diversified
As
you can see,
However,
interested
portfolio,
securities,
and
you
in
is aprobably
annual
rebalancing
could
mix oftry
returns
thinking
Investment
once
not
suitable
a year
of
about
anAto
toeventand
represent
your
maintain
risk
driventhan
tolerance
Investment
diversification,
more
strategy
by
10%
B,imagining
there
an
have
of any
exceeded
two
could
investor
individual’s
separate
becan
a10%
role
investment
mitigate
for
in slightly
eventunderindividual
investments.
driven
their
portfolio.
two-thirds
investing
Someone
Click
risk
in
ofyour
the
to
who
12retired
advance
portfolio.
exposures.
is
monththe
or
periods
close
presentation
to
I’ve
reviewed.
and
retiring
bring
and
inReturns
considering
a table have
of
been
two
Moving
an
investment
imaginary
between
on,
Investment
in
-10%
an
Fortunately, we also and
10%
investments.
Horizon
event-driven
18%
is a fancy
of
strategy
Investment
the
term
12
have in
a number
of tools
month
A
for
would
provides
the
probably
periods,
point
an
in
average
time
and
do
when
been
that can be used tobetter
below
annual
you’ll
to
limit
need
negative
their
return
to
investment
of
use
10%
3.2%
your
reduce risk within a in
18%
with
investments
to
nominimal
of
more
theFirst,
12
than
for
risk
month
income.
5%
of loss
of
portfolio.
periods.
of
The
their
principal.
common
total
By
portfolio.
multiplying
Investment
wisdom
is
diversification is a means
performance
B
that
provides
an
investor
an
against
average
should
of reducing the risk from
probability,
annual
shift
Please
from
return
move
higher
history
forward
of 7.6%
volatility
to
but
any one
security,
asset
indicates
carries
to
slide
lower
5,
a
Correlation
volatility
potential
that
the
as
loss
in
they
of
class, industry,
probability-adjusted
approach
Your
Portfolio.
their
geography, or
Press [ENTER] to Advance
Risk Tolerance
Outperformance vs. Downturn
Tools:
Diversification
Rebalancing
Investment Horizon
Investment A
Investment B
Point at which investments are needed for income
Annual Return
3.2%
7.6%
Keynes
Potential Loss
0%
15%
Your Split
?%
?%
5
Correlation Within Your
Portfolio
that create
One
of the risks
value,tosuch
bear
in mind
as
acquisitions,
while setting
mergers,
up
a diversified
and
recapitalizations,
portfolio is
the possibility
occur
in good markets
that it’s not
as diversified
and
bad. So long
as it as
seems.change,
there’s
Correlation
there’s
is
what
an
opportunity
happens when
for an
diverse assetinvestment
event-driven
classes,
such as equities
strategy
to earn aand
gold, risereturn.
positive
and fall
together. If you think
back to move
Please
the chart
forward
on slide
to
3, you6,can
slide
Adding
see an Eventcorrelation
Driven
Component
when you
look at the historical
performances of
emerging markets and
long/short equity, even
though these are two
strategies that have little
in common.
When you think about
the investment
opportunities that eventdriven investing focuses
on, it’s easy to see why
there isn’t substantial
correlation with the
general market
performance. Events
Press [ENTER] to Advance
The Opposite of Diversity
Harmful when it occurs unexpectedly
Event-Driven Investing is uncorrelated with general
market performance
6
Adding An Event-Driven
Component
If you
An
funds
drifted,
investor
are
use
or interested
whether
limited
who’d like
in to
gain an exposure
partnership
position
researching
riskagreements
investment
limits to
are
event-driven
that
being
funds,
require
followed.
a good
investors
investing
place toto
has two
commit
start
is Morningstar.com.
funds
basic and
avenues
not to
choose
withdraw
A
Premium
final point
from
them
members
about
– private
for aof
securities
period
private
Morningstar
of
securities
time
and
get
that
public
access
iscan
the
securities.
range
structure
to
a database
from
of as
theof
little
fees.
as An
three months
investment
information
fund
about
to as
usually
much
Private
as
charges
thousands
threesecurities
clients
years.
of investment
aAnyone
include
things like
purchasing
nominal
funds.
To
management
the
limited
a limited
right, you
partnerships
partnership
fee
can
of
see
2%a of
snapshot
inmanaged
inan of
investment
assets
Morningstar’s
per year
funds,
fund
hedge
to
should
also
cover
known
have
the
fund
fund’s
information.
anasattorney
hedge
operating
funds.
review
Generally,
the
expenses.
Morningstar’s
agreement
in
Inorder
addition,
database
before
to
gainbe
signing.
most
can
access
investment
sorted
toby
these
funds
charge clients
investment
funds
strategy,
an an
investor disadvantage
Another
incentive
including
needs
funds
fee of to
that
20%
be ofof
accredited,
using
profits
make
private
investments
that are
which
securities
means
based
that
to
generated.
on
gain
corporate
they
access
have
Ifevents.
an
more
to an than
$1 million infund
event-driven
investment
liquid
investing
is
assets, oris that
strategy
managing
$1
thatmillion
they
the and
for
Please
move
forward
their aspouse
investments
you,
2%
management
are
earned
not to
slide
7, cost
the
continuation
income
transparent.
fee
will
of more
you
Because
than
$20,000
of
Adding
an
Event$250,000
valuation
per
year. reports
in
If that
each
same
are
of the
Driven
Component.
previous
produced
fund
achieves
2on
years
a aquarterly
10%
and
expectand
basis,
annual
to
return,
earn
will ainclude
more
20%than
$250,000
dollar
incentive
amounts
fee
in the
willbut
current
cost
not
year.an additional
specific
you
securities, it can
be difficultIntoeffect,
$20,000.
know when
the
One
a
10%
portfolio
thing
annual
to
manager’s
return
consider
would
is
that6%
investment
be
many
afterinvestment
style
fees.has
Press [ENTER] to Advance
Private Securities
Must be an accredited investor
Investments may be “locked up”
Not transparent
Management Fees and Incentive Fees
7
Adding An Event-Driven
Component (cont.)
next.
As
of
results
including
public
I mentioned,
But
that
securities,
dividends.
I hope
are similar
an
thatisOf
this
to
investor
that
the
course,
information
Event-Driven
theythere’s
who’d
canwill
belike
an
be
traded
useful
to
gain
in
performance
important
for
the
you
an
same
as
exposure
investment
you
way
shown
consider
as
to on
event-driven
stocks.
slide
option
whether
3.that’s
Whereas
That
you’d
missing
investing
fact
likecan
mutual
to use
has two
funds
only
from
one
of
make
this
can
these
basic
chart
only
one
investment
avenues
…
be
wonder
traded
please
to
choose
once
…
click
vehicles
if you
again
a day,
from
to
choose
to
add
based
–bring
private
an
to eventon
invest
in a
securities
their
in
chart
driven
onevaluation
that
of
strategy
these
compares
and public
after
mutual
to your
the
securities.
financial
funds,
ArbitrOption’s
investment
with
markets
higher
There
portfolio.
close
is
fees
much
that
than
performance.
day,
what
more
an
you’d
information
ETFget
could
from
readily
be
an
The
bought
exchange-traded
next
available
two
or sold
slides
about
at any
publicwhile
point
fund,
Since
contain
are
the
securities,
more
you
start
thedetail
getting
financial
of which
on
include
markets
what
January,
the
different
you
exchange-traded
are
2010
paystrategies
open.
for?
funds, mutual
ArbitrOption
presented
in Capital
the
funds,
chartand
on
registered
In
If
Management
slide
you
general,
3,click
as investment
well
to
byadvance
has
purchasing
as a
advisors.
shares
the
produced
disclaimer
presentation,
in aaabout
mutual
returnthe
you’ll
of
fund
just
an investor
see
under
performance
a chart
70% by
is
that
of
hiring
making
shows
the
Exchange
mutual
that,
investments
ArbitrOption
in fact,
fund
traded
the
to
that’s
in manage
regulatory
funds
shown
a
arethis
portion
investment
decisions,
on
a product
slide.
of the
mergers,
option
investor’s
Please
that was
that’s
introduced
portfolio.
provided
acquisitions,
review
them
the
It’s
relatively
at
best
special
interesting
your
recently.
to
performance
dividends,
convenience.
note that
The
the
ofthree
the ETFs
ETFsmutual
investment
and
recapitalizations,
that are
management
funds
profiled
and
is the
here
of
Rydex
restructuring
In
these
addition,
allmutual
make
exchange
please
events.
fund.feel
investments
traded
Performance
free
to send
fundsany
in
and
datamutual
isn’t
on this
companies
funds
fund
everything
questions
only
is startlingly
goes
about
–that
asas
are
you
the
farcan
experiencing
dissimilar.
back
see,
material
the
as July
strategy
in this
Inof
mergers
point
2010,
is of but
or
acquisitions,
fact,
in
volatile
presentation
thethese
time
andmutual
since
an
to
soinvestor
as
it funds’
was
to
profit from
prospectuses
launched
needs
[email protected]
to be
the
the
prepared
Rydex
indicate
value that
for.
will possibility
that
Event
the
Thank
be
they
Driven
you.
created
mayand
make
that
by that
the
event.ofOne
investments
Distressed
value
an Strategies
account
of
in the
advantages
exchange-traded
mutual
could
fall
fund
substantially
of
has
ETFs,
gained
funds
relative
in
nearly
from
an one
effort
12%,
tomonth
the
toafter
achieve
other
to the
kinds
Press [ENTER] to Advance
Public Securities
Exchange Traded Funds (“ETF”)
Credit Suisse Merger Arbitrage Fund (CSMA)
IndexIQ Merger Arbitrage Fund (MNA)
Quaker Event Arbitrage Fund (QEAAX)
Mutual Funds
Rydex Event Driven and Distressed Strategies
(RYDSX)
The Arbitrage Fund (ARBFX)
Diversified Arbitrage Fund (ADANX)
Registered Investment Advisors
ArbitrOption Capital Management
8
Strategy Descriptions
• Global macro funds typically focus on identifying extreme price valuations and leverage is often applied on the anticipated price
•
•
•
•
•
movements in equity, currency, interest rate and commodity markets. Managers typically employ a top-down global approach to
concentrate on forecasting how political trends and global macroeconomic events affect the valuation of financial instruments. Profits
can be made by correctly anticipating price movements in global markets and having the flexibility to use a broad investment mandate,
with the ability to hold positions in practically any market with any instrument. These approaches may be systematic trend following
models or discretionary.
Emerging markets funds typically invest in currencies, debt instruments, equities and other instruments of countries with “emerging”
or developing markets (typically measured by GDP per capita). Such countries are considered to be in a transitional phase between
developing and developed status.
Long/short equity funds typically invest in both long and short sides of equity markets, generally focusing on diversifying or hedging
across particular sectors, regions or market capitalizations. Managers typically have the flexibility to shift from value to growth; small to
medium to large capitalization stocks; and net long to net short. Managers can also trade equity futures and options as well as equity
related securities and debt or build portfolios that are more concentrated than traditional long-only equity funds.
Fixed income arbitrage funds typically attempt to generate profits by exploiting inefficiencies and price anomalies between related
fixed income securities. Funds often seek to limit volatility by hedging out exposure to the market and interest rate risk. Strategies may
include leveraging long and short positions in similar fixed income securities that are related either mathematically or economically.
The sector includes credit yield curve relative value trading involving interest rate swaps, government securities and futures; volatility
trading involving options; and mortgage-backed securities arbitrage (the mortgage-backed market is primarily U.S.-based and overthe-counter).
Equity market neutral funds typically take both long and short positions in stocks while seeking to reduce exposure to the systematic
risk of the market (i.e., a beta of zero is desired). Equity market neutral funds typically seek to exploit investment opportunities unique
to a specific group of stocks, while maintaining a neutral exposure to broad groups of stocks defined for example by sector, industry,
market capitalization, country, or region. The index has a number of subsectors including statistical arbitrage, quantitative long/short,
fundamental long/short and index arbitrage. Managers often apply leverage to enhance returns.
Dedicated short bias funds typically take more short positions than long positions and earn returns by maintaining net short exposure
in long and short equities. Detailed individual company research typically forms the CoreHedge alpha generation driver of dedicated
short bias managers, and a focus on companies with weak cash flow generation is common. To affect the short sale, the manager
typically borrows the stock from a counterparty and sells it in the market. Short positions are sometimes implemented by selling
forward. Risk management often consists of offsetting long positions and stop-loss strategies.
9
Disclaimer
The chart on slide 7 reflects the performance of the ArbitrOption strategy in a proprietary trading account. The funds in that account are not
subject to the trading restrictions of retirement assets. The funds in that account receive 100% leverage, but results are calculated on an
"equity x 2" basis (for performance calculation, the leverage is treated as actual cash in the account) to allow for in-kind comparison with an
unlevered account. All figures are ex-trading costs, net of a hypothetical 2% annual management fee (deducted monthly), and unaudited.