David Clenzen has been employed by the investment firm of Hamlash Investment Advisors, based in Houston Texas, for the past twelve (12) years and during the last four (4) years he headed the Mergers and Acquisition (M&A) Division of the firm. Over this period he has gained a reputation globally as being one of the top M&A specialists, particularly for medium sized transactions. Following the announcement that the firm would be acquired by a large mid-west financial institution, David has decided to leave the firm to start his own Hedge Fund focusing on Merger Arbitrage. He considers that the performance in M&A activity will continue based on economic prospects, over the next two years. This trend of a sustained growth in M&A activity is supported by major industry players. Jonathan Sheerer, founder of Hamlash Investment Advisors has agreed to become one of the General Partners, and to invest a sizeable amount in the new Hedge Fund. In addition to Jonathan and David, some of the senior managers of the M&A Division of Hamlash Investment Advisors would be founding members of and investors in the new Hedge Fund. The new Hedge Fund will seek additional investments from public pension plans, large endowments and foundations, and High Net Worth Individuals (through Family Offices) and possibly Sovereign Wealth Funds. Based on expressions of interest received to date, the new Hedge Fund expects to raise approximately $600 million for investment. The new Hedge Fund is expected to be structured to attract investments from both US and Non-US investors. The articulated investment objective of the new Hedge Fund is to earn a higher return for its investors, based on the level of risk involved through focusing on publicly announced transactions with definitive merger arrangement and plans in place. Jonathan Sheerer, founder of Hamlash Investment Advisors has agreed to become one of the General Partners, and to invest a sizeable amount in the new Hedge Fund. In addition to Jonathan and David, some of the senior managers of the M&A Division of Hamlash Investment Advisors would be founding members of and investors in the new Hedge Fund. The new Hedge Fund will seek additional investments from public pension plans, large endowments and foundations, and High Net Worth Individuals (through Family Offices) and possibly Sovereign Wealth Funds. Based on expressions of interest received to date, the new Hedge Fund expects to raise approximately $600 million for investment. The new Hedge Fund is expected to be structured to attract investments from both US and Non-US investors. The articulated investment objective of the new Hedge Fund is to earn a higher return for its investors, based on the level of risk involved through focusing on publicly announced transactions with definitive merger arrangement and plans in place. Over the next few months the process to establish the new Hedge Fund should be completed, including the legal structuring and operational procedures. Included in the operational procedures would be a comprehensive Risk Management Framework. David will recommend a mid-sized firm of Auditors located in Dallas, Texas to be the auditors of the new Hedge Fund. This firm is the present auditor of Hamlash Investment Advisors and also has experience in conducting audits of Hedge Funds. Required: 1 (i) Briefly describe the Merger Arbitrage strategy to be undertaken by the new Hedge Fund
