With information now ubiquitous, the primary source of market inefficiency is no longer informational but behavioral. The most durable edge is "time arbitrage"—exploiting the market's obsession with short-term results by focusing on a business's normalized potential over a two-to-four-year horizon.

Markets underestimate how lower rates and tighter credit spreads create a self-reinforcing "flywheel." This cycle of cheaper borrowing boosts asset values, which in turn enables even better refinancing terms, rapidly recovering and creating value in ways not yet priced in.

A board's duty to maximize shareholder value is an expected value calculation. A $100B offer with a 75% chance of closing is valued at $75B, making an $80B offer with 100% certainty more attractive. Boards weigh financing and regulatory risks heavily against the headline price.

Even with identical acquisition multiples, the higher cost of debt financing today means a new LBO generates an excess return over cash that is 4.5 percentage points lower than it would have during the zero-interest-rate period (ZERP). This presents a major structural challenge for future private equity performance.

A specific arbitrage opportunity exists with serial acquirers. When they announce a deal that will significantly increase future earnings per share, the market often under-reacts. An investor can buy shares at a compressed forward multiple before the full impact of the acquisition is priced in.

Today's markets are less efficient because the dominant players—passive funds, retail traders, and short-term quants—do not invest based on long-term fundamentals. This creates a significant arbitrage opportunity for investors who are willing to focus on a company's intrinsic value over a one- to three-year horizon, a timeframe now largely ignored.

Farallon’s foundation in merger arbitrage, with its clear upside (deal price) and downside (pre-deal price), created a DNA of probabilistic thinking. This framework of assessing probabilities and expected value is now applied across all of the firm's investment strategies, not just arbitrage.

Investors often misinterpret the impact of complex regulatory changes, causing price moves based on noise rather than substance. This creates arbitrage opportunities for firms that can accurately differentiate between consequential rules and those that ultimately don't matter.

Public market investors often build financial models that automatically taper down high growth rates (e.g., 60% to 50% to 40%). This systemic underestimation creates an arbitrage opportunity for private investors who can better value sustained hyper-growth over a longer time horizon.