'Event-Driven' Tops Hedge Strategies, Says Credit Suisse

by Carla Johnson, Investors Offshore, London

01 June 2007

New Credit Suisse/Tremont Hedge Fund Index research reveals that Event Driven hedge funds were the top performing sector over the past 12 months, returning 15.62%.

Credit Suisse Index Co., Inc., on Wednesday released its latest industry commentary, Event Driven for All Seasons, disclosing that the Event Driven hedge fund strategy, which includes the Distressed, Multi-Strategy and Risk Arbitrage sub-sectors, was the top performing sector over the past 12 months. The sector has benefited from a wide range of opportunities directly related to corporate capital structures presented in all market cycles.

“Event Driven hedge fund managers can shift exposures based upon 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,” according to the Credit Suisse Index Co., Inc. “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 ten years with a Sharpe Ratio of 1.26.”

Some of the findings in Event Driven for All Seasons include the following:

• Event Driven hedge funds have returned 15.62%*, making this the top performing sector in the Credit Suisse/Tremont Hedge Fund Index over the past 12 months;
• Many Event Driven managers can operate fluently and with flexibility across the entire capital structure, enabling managers to potentially play every aspect of a trade over time, picking spots in a companies capital structure where they think the most attractive risk/return positions lie;
• Recently, the growing number of global M&A deals, due to both a consolidation of industries and falling trade barriers, has resulted in a particularly rich environment for the strategy. Further, the increased LBO volume has driven M&A activity, leading to more opportunities for hedge fund managers;
• In a developing trend, Event Driven hedge funds have replaced traditional banks as lenders, allowing corporations to assume more debt, refinance their loans, avoid bankruptcy and continue to grow;
• Event Driven managers have applied disciplined hedging and careful portfolio construction techniques. This means that in a year like 2002 that was marked by a severe dislocation triggered by accounting frauds and high-profile bankruptcies such as Enron and WorldCom, Event Driven hedge funds were only down 5.94% compared with the MSCI World which was down 14.19%, and the CS High Yield Index which was down 6.24%; and
• The Credit Suisse/Tremont Event Driven Hedge Fund Index managers have had negative correlation during equity and credit market drops, but have shown increasingly positive correlation when markets rally.

Credit Suisse provides its clients with investment banking, private banking and asset management services worldwide. Credit Suisse offers advisory services, comprehensive solutions and innovative products to companies, institutional clients and high-net-worth private clients globally, as well as retail clients in Switzerland. Credit Suisse is active in over 50 countries and employs approximately 62,500 people. Credit Suisse's parent company, Credit Suisse Group, is a leading global financial services company headquartered in Zurich. Credit Suisse Group's registered shares (CSGN) are listed in Switzerland and, in the form of American Depositary Shares (CSR), in New York.

In its asset management business, Credit Suisse offers products across the full spectrum of investment classes, ranging from equities, fixed income and multiple-asset class products, to alternative investments such as real estate, hedge funds, private equity and volatility management. Credit Suisse’s asset management business manages portfolios, mutual funds, and other investment vehicles for a broad spectrum of clients ranging from governments, institutions and corporations to private individuals. With offices focused on asset management in 18 countries, Credit Suisse’s asset management business is operated as a globally integrated network to deliver the bank’s best investment ideas and capabilities to clients around the world.

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