Trends Watch: Event-Driven Investing

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Herandi Caro, Owner, Crash Boat Capital.

What is your outlook for event-driven investing?

From the event-drive perspective, I anticipate seeing more spin-offs (demergers) than conventional M&A activity in United States since interest rates are higher relative to last year, when interest rates were at an all-time low. 

The geopolitical changes we see across regions of Asia-Pacific, Latin America, and some regions in Europe, as well as the tensions between China and Russia, could influence new policy in United States to focus initiatives for domestic production. Perhaps companies will feel they can “unlock hidden value” from company divisions that are not “fairly priced by the market” but could be priced better if separate instead of combined.

It’s the usual pitch from companies when it comes to these types of scenarios, and from my perspective, I think these will be more common in time. Also, all other things constant, I anticipate seeing more scenarios with companies searching for debt and equity restructuring even at given rates.

Where do you see the greatest opportunities and why?

I see the greatest opportunities in companies with mid-sized and small capitalizations, and companies in foreign markets; the decisions regarding economic policy in United States have taken their toll in foreign currencies. I think that a similar scenario could be seen in domestic markets and, personally, I am becoming more and more interested in financial markets activity coming after the third quarter of 2023 up to the end of 2024 and maybe even first half of 2025, given we have presidential elections in 2024.

On the short side, I see opportunity, the usual type of opportunities I consider for short selling; companies with market capitalization without earning power for long-term sustainability, companies with dubious accounting and business practices, companies with weakening business models, companies that were more of a hype and a fad and companies I call “a one trick pony,” among others.

What are the greatest challenges you face and why?

The challenges related to financial markets operations are usually related to the proliferation of market participants chasing similar opportunities in the market; too much money in pursuit of asymmetric and absolute returns, hence, chasing too few opportunities; that’s has been a standard for a while already. The challenges related to the business are many, as with every business I would assume; finding adequate resources to conduct this type of business is a challenge, finding adequate talent with soft skills and some hard skills is a challenge, running the business is a challenge, staying focused while handling all these business-related tasks is a challenge. Also, growing a business of this kind, in the west side of Puerto Rico where there has been no other business dedicated to these types of endeavors before, is a challenge, but a challenge I willingly decided to accept even with all the risks it brings.

What keeps you up at night?

Maybe I stay up at night until late while conducting research and reading since there is not much market activity at that moment; I’m pretty hyperactive I would say. Sometimes I do spend time thinking about other things not related to the business at night. I think about my brothers and sister, I think about my mother and grandfather, for he is confronting a debilitating and terminal disease, and I know my mother has not experienced that part of life in which one of your parents pass away (which unfortunately I have had to experience). I also think about people who I care for, who are going through adversities and setbacks in life.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.