CBS MarketWatch.com
Ex-Soros trader starts new hedge fund
By Alistair Barr
AlistairBarr
SAN FRANCISCO (CBS.MW) -- Mike Donatelli, a veteran merger arbitrage trader, has started his own hedge fund firm to tap into rising demand for alternative assets.
Donatelli, who managed a merger arbitrage portfolio at Soros Fund Management for four years, started New York-based EAC Partners with six other employees in January.
The new fund will focus on merger arbitrage, a strategy Donatelli has been involved with for more than 15 years. It will also trade high-yield and distressed securities.
A basic merger arbitrage strategy involves buying shares of target companies and betting against the stock of acquiring firms. As a deal nears completion, the share prices of the two companies usually converge, generating returns.
About 140 hedge funds overseeing $14 billion in assets use the strategy, according to Hedge Fund Research, which tracks the industry.
Surging merger and acquisition activity in recent months has lifted the strategy out of a period of lackluster performance between 2001 and 2003. See full story.
"Deal activity has picked up and we think that will continue," Donatelli said in an interview.
While the launch of EAC Partners coincides with a pickup in M&A activity, he indicated that the new firm has been in the works for several years.
Before joining Soros, Donatelli oversaw a merger arbitrage portfolio at SAC Capital, the multibillion-dollar hedge fund firm run by Steven Cohen.
Prior to that, Donatelli ran a proprietary merger arbitrage portfolio for Swiss bank UBS UBS, -0.45% from 1991 to 1998.
He worked in similar positions at PaineWebber from 1981 to 1991.
At EAC Partners, Donatelli is working with two merger arbitrage analysts with a combined 17 years of experience and one distressed debt and high-yield analyst with 25 years of experience.
The firm also employs two traders with a total of 22 years of experience between them, as well as a chief financial officer.
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