A $14 billion hedge fund is venturing where others fear to tread

Canyon Capital, a Los Angeles-based firm set up Joshua Friedman and Mitchell Julis, sees a a fresh money-making opportunity in mergers and acquisitions.

Wall Street: Money Never Sleeps
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Canyon Capital Advisors, a $14 billion Los Angeles-based investment firm set up Joshua Friedman and Mitchell Julis, sees a fresh money-making opportunity betting on corporate takeovers.

In a January letter to investors, the hedge fund firm said there has been a "significant increase in supply" of potential deals "as companies having difficulty growing organically have instead sought to buy growth."

At the same time, fewer investors are able to invest in these kinds of deals, which generally involves buying the stock of a company being acquired during a sale while selling off stock in the acquiring company.

Canyon cites the gutting of Wall Street banks' proprietary desks, which used to trade the banks' own money, and the travails of many event-driven hedge funds which have suffered and can't take big positions any more.

Event-driven hedge funds, a strategy which encompasses betting on mergers, lost $38.3 billion in net assets last year, according to data tracker HFR. Hedge funds focusing on merger arbitrage returned 3.6% last year, as per HFR.