Farallon® seeks to achieve superior risk-adjusted returns through a process of fundamental, bottom-up analysis. We pursue multiple investment strategies on an opportunistic basis, which include five core investment strategies: Credit Investments, Value Investments, Merger Arbitrage, Real Estate-related Investments, and Direct Investments. Each investment is evaluated independently on a fundamental basis. Farallon invests globally, focusing on developed and emerging markets alike. We make investments in public and private debt and equity securities, and direct investments in private companies and real estate.
Farallon places a priority on the preservation of capital. While we value and employ risk management analytics, we primarily manage risk through rigorous research and analysis. We also seek to build strong relationships with the management of the companies in which we invest.
This category includes investments in companies experiencing financial distress or whose credit is viewed as marginal but improving, or whose debt Farallon believes is inexpensive relative to its underlying risk, or delivers an attractive return. Credit Investments include non-investment grade debt in leveraged or underperforming companies, as well as companies experiencing a liquidity crisis, defaulting on their debt obligations, filing for Chapter 11 bankruptcy protection (or its equivalent), undergoing liquidation or undergoing another corporate event, such as a merger, recapitalization, reorganization or restructuring. Credit Investments may also be made in anticipation of strengthening credit, a repayment or refinancing, an event of default or amendment or renegotiation of covenants or economic terms. This category comprises mainly debt securities and instruments and debt-like securities and instruments, including, without limitation, bonds and loans, including high-yield and mezzanine loans, bonds and notes; funded and unfunded bridge loans; bank loans, participations and sub-participations in such loans; accounts and note’s receivable and payable held by trade and other creditors; asset-backed securities and loans backed by loans, leases or receivables; commercial and residential mortgage-backed securities and loans; credit default swaps and other types of derivatives; preferred stock and convertible securities and warrants; litigation claims; and interests in liquidating entities. Farallon may purchase existing securities or instruments on a secondary basis or may purchase newly originated securities or instruments on a primary basis.
This category consists of investments and short sales in securities that we believe are underpriced or overpriced relative to their intrinsic or fundamental value. These mispricings may be caused by, among other things, general market conditions, a company-specific issue that Farallon believes is temporary, a change in management or strategic direction, or a variation between Farallon’s assessment of a company or its market and that of other market participants. This category also sometimes includes investments in restructuring companies that are undergoing significant corporate events such as spin-offs, recapitalizations, litigation events, strategic realignments and other major changes. These investments typically are made in common stock. We frequently seek to hedge our equity investments with short or long positions in individual company stocks or stock market indices or other derivative instruments.
Our Merger Arbitrage strategy is focused mainly on corporate takeovers. Each investment seeks to capture the spread between the current and projected values of securities of companies involved in a merger or acquisition. To employ this strategy, we typically establish a long position (usually a purchase of common stock) in an announced takeover candidate and, if the proposed merger or acquisition is structured as a share-for-share deal, take a short position in the company making the acquisition.
Real Estate Investments
This strategy pursues investments in fee simple real estate, leaseholds, mortgages, or other real estate-related assets, especially in cases where entitlement, development, leasing, and addition of management expertise can add value. Farallon invests across a broad range of real estate assets and at various points in the capital structure of a real estate transaction. Investments typically involve the purchase of assets that we believe are undervalued or inefficiently managed or financed, in particular assets that are valued at a significant discount to replacement cost or can be developed to higher and better uses. Farallon often partners with experienced local developers who are involved in day-to-day management and oversight of specific real estate projects.
Direct investments in equity and debt of operating and services businesses, and any other businesses, may be made pursuant to any of the foregoing or other strategies. Such “Direct Investments” include private market transactions in which a debt, preferred stock, or equity investment is made, typically with an expectation of receiving a cash return and generally achieving additional upside if the investment performs according to expectations. For these investments, Farallon generally looks for inefficiently financed situations in which it can facilitate a recapitalization, or situations in which traditional institutional financing is not available.