Steven Gerbel is the Founder and Chief Investment Officer at Chicago Capital Management, a US-based merger arbitrage hedge fund. Steven has over 20 years of experience in hedge funds focused on merger arbitrage and convertible arbitrage markets. Prior to founding Chicago Capital Management, Steven was a general partner at First Capital Management LP, a Chicago-based hedge fund focused on merger and convertible arbitrage, value investing, and distressed markets. Prior to this, Steven traded commodities on the Mid-American Commodities Exchange at the Chicago Board of Trade. He holds a bachelor of science in economics degree from DePaul University.

In this wide ranging conversation, Steve shares some valuable information for those who aspire to become a hedge fund manager. We touched on a variety of topics, such as the current state of the merger arbitrage industry in the US. Here is how he explained why he believes the merger arb market is bullish:

“For years, merger arb spreads have been effectively priced at three times the risk free rate. And with interest rates going down, our spreads have been contracted and now with interest rates seeming to have bottomed here in the United states, that will cause our profit margin to expend at a rate of three, an if we get some inflation on top of that and an expanding economy, there could be a great wave of merger arb transactions coming in the very near future”

As a manager that focuses on mergers in the financial sector, Steven explained in a very simplistic way the reason why he thinks there will be a wave of mergers in the banking sector in the foreseeable future:

“Why do you we have just under 8000 banks in the United States? If you walk down the street in New York, you see banks in almost every corner in expensive real estate. It just doesn’t make sense. In this electronic environment, less and less people go to their branch office every day to deposit their checks or to get their cash, we all use ATMs.”

We talked about his greatest trading loss and what he learned from it:

“I learned my lesson that despite the fact that we had good information and that our information was ultimately right, if the regulators go against you, you lose”

On the topic hiring, he mentioned how much he values honesty in people, as he believes he can teach anyone the tools they need to succeed as a merger arb trader, but one thing he cannot teach them is honesty:

“I am looking for character; I am not really as hung up on credentials”

Finally, he gives a valuable piece of advice to aspiring hedge fund managers who are just starting out:

“Find the smartest person in the segment of the market they are interested in send them their resume and then I would call them every day and drive them absolutely nuts. Let them know that you are ready to dedicate your life to serving them”

And this is just the tip of the iceberg!

And now, the show notes:

  • 02:37 – What is Merger Arbitrage hedge fund strategy
  • 04:40 – Do you speculate on mergers? “Buy and hope”
  • 05:40 – What is the biggest risk of merger arbitrage strategy?
  • 07:20 – How do you mitigate these risks?
  • 08:10 – Mistakes that Steve made on the way
  • 09:40 – How Steve became a hedge fund manager
  • 11:05 – Analogy of flying a plane and investing in merger arbitrage strategy
  • 13:04 – How long does it take from an investment idea to the actual trade happening?
  • 14:50 – Current market landscape for merger arbitrage
  • 18:40 – Steve on economic business cycles and crisis
  • 21:10 – On the increase in inflows of capital across the merger arbitrage strategy
  • 24:05 – Liquid alternatives fund
  • 24:48 – Restrictions on mutual fund trades and limitations
  • 25:25 – What Steve is looking for when looking at a potential candidate
  • 29:00 – Piece of advice to graduates
  • 31:10 – Who did Steven look up to ?
  • 29:50 – 30-second elevator speech
  • 34:15 – Steven’s daily routines and on being engaged
  • 37:50 – If you don’t love what you are doing you will not make it in the financial markets
  • 39:00 – How does Steve deal psychologically with big loses
  • 41:50 – Steve’s favorite books
  • 43:00 – The most important thing about getting into the hedge fund industry and who you are competing against


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The next episode will come out on March 9th, in which we interview Dr. Thomas Bloch, the co-founder of the FinTech robo-advisor company Vaamo.


Published On: February 23rd, 2017 /