This category of funds benefits from the outcomes of company specific or transaction-specific situations like mergers, acquisitions, corporate restructuring, or bankruptcy. Some vendors also call this strategy as Special Situations.

The Distressed Securities strategy implies trading the securities of companies in reorganization and/or bankruptcy, for example, senior secured debt or common stock. The Risk Arbitrage category of funds profits from discrepancy in prices of companies involved into a merger or acquisition. For example, in case of a merger, the manager typically takes a long position in the company being acquired and a short position in the acquirer.