Allow me to introduce myself as a new contributor to Hedgeworld. I am a former chief investment officer and hedge fund manager who was responsible for more than $5 billion in assets. My areas of specialty included Convertible, Merger and Options Arbitrage. I also managed high-yield and high-grade fixed income, as well as various types of equity investments, both domestically and globally. I managed these products in private partnerships and mutual funds. My name is Edward Strafaci.

In this column we will not only explore ideas and make recommendations, but also learn the various complexities of investing in the arbitrage, fixed income and equity space. For too long investors have been “force fed” a diet of ideas that are long in verbiage but short in substance. What I prized most as a manager, receiving a sales call, was a concept grounded in a mathematical reality. To that end, when we present an idea, we will sometimes include a quantitative analysis that the user can accept, learn from and possibly adjust to his or her projections. In this way, even an amateur investor can eventually see the investment world through the eyes of an accomplished hedge fund manager.

On a Global and Domestic scale we will cover:

Convertible Arbitrage – Convertible securities have always been a fertile area. We will offer opportunities, as well as tutorials, on the different methods used to analyze and model these sometimes confusing but rewarding creatures.We will help you understand this hybrid and the many uses it has in the today’s portfolio.

Merger Arbitrage – Merger or takeover arbitrage has fascinated financiers since the first corporate takeover. We will thoroughly study this discipline using probability based analytics. The risks addressed will include, but not be limited to: antitrust, financing, timing and the personalities of the executives who are vital to the deal. This will be both useful to our usual audience, and occasionally to an investment banker. To understand M&A is to understand the economic underpinnings of our capitalist system, it can also add a solid non-correlated return to a portfolio.

Options Strategies – Understanding options and their inherent value lies at the heart of modern finance. It is with this in mind that we will describe and utilize options strategies as part of an overall perspective when presenting an investment choice. Options modeling affects every derivative strategy employed. Options, like medicine, can offer incredible solutions or devastating consequences. The in-depth discussion about and knowledge of the options market will play an important role in our research. When suitable,we will integrate options strategies into our advice. We will also demonstrate to the user how macro derivative valuation plays a part in many investment themes.

Equities – If there is one thing that investors like Warren Buffet know, it is that finding fundamentally undervalued securities works when seeking profits. When combined with an arbitrage play, these situations have the potential for solid profits with low downside. We believe the intersection of fairly priced equities offering arbitrage opportunities present an excellent place for one’s capital. Besides traditional fundamentals, we will also be evaluating a security’s volatility, beta, dividend policy, momentum and where it sits on the value-growth continuum. These are factors that confirm a good investment and offer a chance for proper diversification.

Fixed Income – At the end of the day, bonds are nothing more than tradable loans. We will investigate high-grade, high-yield and municipal fixed income choices. We will assess the creditworthiness of a company or country, and whether its credit rating actually reflects the yield offered. When applicable, we will also comment on the cost of credit default swaps. In this way, our core ideas will reflect what we feel is the optimal approach for capitalizing on a prospective outlay.

Ultimately we will tie these ideas to a framework that speaks to the fact that investors, as well as consultants, have to deal with the administration of an account or even a firm. From time to time we will talk about dealing with various types of sales calls, prime brokers, the administration of capital, operations and the myriad rules, regulations and tax situations. We will also include primers that review basic topics essential to Finance. For instance,the proper accounting for a return on an investment that considers expenses, taxes, present value and variance is not just thorough but essential in today’s competitive environment. Often, in the heat of battle, some of these components are ignored.

Lastly, I should mention that I have more than 30 years and billions of dollars’ worth of investing experience. Unfortunately, I encountered my own regulatory issues a number of years ago. I made a few bad choices in an otherwise good career, and it cost me. From this experience, I want to share with the readership the pitfalls of acting too cavalier when doing business. I also want to offer insight into how to avoid a potential problem. The care of your or another’s assets should be handled with extreme caution. Regulations must always be adhered to in the fullest. Sometimes what seems clever is downright wrong. It is from my error that I wish for you to learn, help detect, and avoid potential complications and trouble.

These are just some of the areas we will touch upon. We will grow and adapt our conversation to the ever-changing market place. We will sometimes be dead-on accurate, and sometimes not. However, I promise it will be a fun and rewarding journey that we will take together, in the hope of leaving no investing stone unturned.

Edward Strafaci is a principal at a web consulting/transmedia company and teaches college-level finance. He also writes a personal blog, whatasmartguy.com.

This entry was posted on Thursday, January 5th, 2012 at 3:19 pm and is filed under The Thoughtful Arbitrageur. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.