Discover an investment vehicle built for above-average returns and unlock the answer to; why invest in special situations?

Why Invest in Special Situations?

Special situations investing is a unique and diverse strategy that capitalizes on the events of specific corporate actions. These events are usually short-term and can positively or adversely impact the value of a stock, bond, or other assets. But why invest in special situations? Let’s discover the allure.

Why invest in Special Situations?

The reason to invest in special situations is because of the high rates of return, relatively short-term investment horizon, diversification, risk management, and flexible value creation. Here are the attractions that address the question; why invest in special situations?

High Returns

The catalytic events created by corporate actions can potentially offer investors significant capital appreciation in the form of capital gains. The initial investment, coupled with short time horizons beget above-average rates of return on invested capital.

Short Time Horizon

Special events are often near term in nature, so the payoff for your analysis happens sooner. You can then recycle the capital into a new promising situation more frequently, taking advantage of other opportunities that come up. This contrasts to some strategies that require holding a stock or bond for years before having your thesis validated (or disconfirmed).

Variety of Value Creation

Spin-offs, merger arbitrage, acquisitions, distressed debt and securities, liquidations and activist campaigns are a variety of special situations events offering operational improvements, and strategic realignment culminating in increased shareholder value.


Why invest in special situations? Special situations investing offers diversification through strategy variety and exposure to several diverse sectors and industries. Multiple asset classes, low market correlation, and dissimilar risk profiles enhance overall portfolio resiliency.

Risk Management

Special situations investing, as in all investing, risk must be identifiable, manageable, and survivable. Meticulous due diligence, hedging and accurate risk assessment are mitigation tools of the prudent, risk-averse investor.

Engagement and Influence

On occasion, special situations investors may engage with board members, management, significant stakeholders, and the courts to influence accretive initiatives, strategic operational and transaction decisions, governance policies, and ESE (environmental, social, and economic) issues.


Special situations investing is an effective strategy to exploit market price discrepancies and asset misevaluations. Investors are free to adapt their strategies to the oscillations of market change, economic cycles, and yo-yo inflationary climate.

Why Invest in Special Situations?

 Special situations mean corporate events that motivate astute investors to consider buying discounted equity and fixed-income securities and undervalued assets with the expectation of short-term price and value appreciation.

These events, such as liquidations, divestitures, mergers and acquisitions and restructurings require thorough analysis, opportunity identification and assessment expertise, risk navigation, and effective strategy execution.   

Special situation investors must look beyond the standard market metrics, company performance and industry trends in, at times, a contrarian effort to take advantage of these fleeting, unique opportunities.

Overall special situations events are unusual occurrences ripe with attractive returns from corporate-induced circumstances often overlooked by market participants and untouched by traditional investment strategies.

Why are Special Situation Funds Necessary?

 Special situation funds are necessary because of the unique features and benefits they contribute to the investment landscape. Here are a few:

  • Special situation funds provide the opportunity to capitalize on time-limited corporate actions.
  • Special situation funds deep dive into unconventional fiscal scenarios and discover hidden undervaluation the broader market has missed or ignored.
  • Special situation funds are contrarian by nature. They are not index dependent and often deviate from the investing herd in search of above-average market returns.
  • As a part of the broader event driven hedge fund category, special situation funds provide an entrée to substantial capital gains, and diversification gleaned from special investment scenarios.

Why invest in special situations? Invest in special situations for sizable, short-term profits, the investment strategy flexibility, minimized portfolio volatility due to low market correlation and to profit from an investment road-less-traveled.

Read next: What Is Special Situations Investment Banking?

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