Matt Levine’s Money Stuff: Hedge Funds Help Companies Hedge

Deal-contingent hedges

This is cool:

A growing number of hedge funds are helping banks recycle the risks stemming from deal contingent trades, a risky type of derivative that banks sell to corporates and private equity firms looking to hedge financial market moves ahead of the completion of major mergers and acquisitions.

At least four hedge funds are active in helping banks offset deal contingent risks, according to industry experts, compared with just one a few years ago. That is helping create a secondary market for the risks stemming from these complex trades and enabling banks to underwrite more – ...