Arbitrage With John Orrico

Should retail investors try what you are doing, or is this a strategy that's too risky for folks to try at home?

It's probably not a good idea. A portfolio needs to be diversified, and we engage in complex hedging strategies to reduce risk in the portfolio, as well as short-selling on stock-for-stock deals. We invest in 50 or so deals at one time and over 150 deals over the course of a year. Engaging antitrust counsel, performing fundamental research around each party to a transaction, along with the currency hedging on foreign deals all make this an institutional investment strategy.

Where does the Arbitrage fund fit in with the rest of somebody's portfolio? Is it a core holding?

It's a core holding in our opinion, although I guess we are somewhat biased. But a noncorrelated alternative strategy should be part of every portfolio, and depending on your risk profile that percentage will vary. Maybe it should be between 10% and 50% of your portfolio.

It seems like you are running a hedge fund-styled investment strategy, but in the form of an open-end mutual fund.

That's not a bad way to characterize it. Since the early 1960s, risk arbitrage has been a core investment strategy for the nation's wealthiest families to preserve their capital. More recently for institutional investors such as pensions and endowments. The Arbitrage Fund, our fund, is one of the first and few funds to make this strategy available to the public. And our management team comes out of the hedge fund and family office environment for the most part, which is a huge advantage for investors.