Discuss event-driven hedge fund strategies: their investment features, how they are put into practice and the role they play in a portfolio

Event-driven funds bet on the outcome of corporate events. In merger arbitrage the manager buys the target and, in a share-for-share deal, shorts the acquirer in the exchange ratio, locking in the gap between the offer value and the target's price if the deal completes; in a cash deal the manager simply buys the target. The payoff resembles selling insurance on completion: many small gains and occasional large losses when deals break, so returns are negatively skewed and more correlated with equities in crises. Distressed securities managers buy the debt of firms near or in bankruptcy to profit from restructuring; positions are illiquid and suit long lock-ups. The trap is trusting a smooth record that hides left-tail risk.