Mutual fund portfolio managers sometimes leave their jobs for the freedom and fees that hedge funds can bring. It can work the other way, however.

John Orrico, a former hedge fund manager, is planning to open a mutual fund that will follow a familiar hedge fund strategy - merger arbitrage. The Arbitrage Fund plans to invest at least 65 percent of its assets in the securities of companies that are involved in proposed mergers, according to a registration statement filed with the SEC Feb. 15.

The fund hopes to exploit the difference between the market price of an acquired company's stock and the eventual purchase price of the company. Because of the risk that proposed mergers will not close, there often is a difference between market price and the proposed purchase price.

Orrico formed the Arbitrage Fund's adviser, Water Island Capital LLC of New York, in January, according to the registration statement. Orrico formerly managed hedge funds with Lindemann Capital Partners LP of New York, according to the registration statement.

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