Everyone with half a brain knows that the merger-arbitrage strategy is overcrowded, that returns have disappeared, and that no self-respecting fund-of-funds manager would even consider putting money into that arena.

To prove the point, Avery Partners, a New York merger arbitrage hedge player, liquidated its $275 million fund not long ago, claiming an inability to find attractive opportunities.

No one seems to have passed this on to Peter Schoenfeld, however.

Mr. Schoenfeld, founder of the eponymous firm, has been practicing this particular form of wizardry forever, racking up net returns of better than 16% a year since 1980, and amassing nearly $900 million under management.

How does he do it?

To be fair, he adapts. He has broadened his activities such that he now runs two funds: a global multi-strategy event-driven fund and a global “credit opportunities” fund.

In reality, he takes the expertise he has developed in the merger-arbitrage business over the past thirty years and uses it to analyze the relative values of different asset classes, competing companies, and stand-alone divisions.

What he likes best is to invest in deals, and, sometimes, to get his hands dirty.

Traditional merger arbitrage is a craft that calls for trading the stocks of companies acquiring other companies. The usual approach is to buy the stock of the entity being acquired, and to sell short the stock of the pursuer. As the deal approaches completion, the target stock usually rises, approaching the deal price, while the stock of the buyer may decline, reflecting share dilution or perceived risks in the deal.

It sounds pretty simple, but it is assuredly not.

The fun begins when a governing body intervenes with an antitrust complaint, which may throw the deal into limbo for months, and cost the arbitrageur time and money.

Or, the target may decide it’s much better off being independent thank you very much. In that case, the company under siege may resort to a number of tactics designed to scare off its pursuer, including adopting a so-called poison pill defense or employing a dastardly “scorched earth” policy that will make the company so unattractive that no one will be interested in buying it ever again.

Or, the target may look around for a “white knight” whose job it is to acquire it in a more acceptable fashion. This usually means guaranteeing that the CEO gets to keep his job.

The real work of the merger-arbitrage team is to assess these risks, follow the play by play, and try to stay on the winning side of the ledger. It means having a phalanx of lawyers at your disposal and a deep understanding of the real worth of the companies involved.

Mr. Schoenfeld has an experienced, professional team, many of whom have been with him for years. They are particularly skilled at analyzing the underlying values of businesses to be sure they don’t get hung out to dry if a deal turns sour.

These days, they don’t only concern themselves with stocks. In the last several years, the investment community, and especially the hedge funds sector, has developed a new strategy called capital-structure arbitrage. This approach involves playing one asset class against another, hoping that as a company gains strength its debt securities might rise in value compared to its equity instruments, or, frequently, the other way around.

Mr. Schoenfeld is active in this sphere, as well as in the “event driven” category, since much of what he does is to analyze companies in transition, perhaps coming out of bankruptcy or disposing of assets to please its creditors.

At the end of the day, all these activities revolve around companies in motion, put there by a variety of forces. Mr. Schoenfeld and his team seem to move between these spheres with uncommon agility.

They also have developed a sizable advantage over most of their competitors. For many years Mr. Schoenfeld has been active on the global stage, operating out of a London office. Over half of their investments today are outside of America.

As others were suffering in the early part of this decade from a paucity of deals in America, Mr. Schoenfeld moved the firm’s center of gravity to Australia, South Africa and, less exotically, to Canada and Europe.

This isn’t as easy as buying a plane ticket and a pocket translator. The firm had to get up to speed on local law, custom, and sentiment. Though these ventures have been largely fruitful, operating in a foreign land can occasionally prove mystifying, and costly.

A case in point is an ongoing battle in Germany involving the company Beyersdorf, which makes Nivea hand cream. The possible purchase of that entity by Proctor & Gamble looked like a pretty good thing until the residents of Hamburg decided that this was a test of their nationalism and put their collective foot down.

Suddenly, the local government was pulling legal rabbits out of hats to squash the deal, costing Mr. Schoenfeld and others involved a great deal of money.

For all that he is mild mannered and soft-spoken, Mr. Schoenfeld can on occasion play tough. His firm has now led three successful proxy battles, against Mim Holdings in Australia, Willamette Industries, and Circon Corporation. In each case he pressured management to accept a suitor’s bid, realizing shareholder value as well as nice gains for the arbitrageur.

These mano-a-mano confrontations are not for everybody, but Mr. Schoenfeld seems to delight in putting his analysis to the test. He also has patience, a commodity sometimes in short supply in the risk-arbitrage community. His career says it all.

Compared to many in the financial community, who bounce from job to job, Mr. Schoenfeld has been a veritable stick-in-the-mud. He started out in risk arbitrage at White Weld. In 1978, Robert Rubin (who was to become Treasury secretary) convinced the chairman of Wertheim & Company that Mr. Schoenfeld would be an excellent choice to manage some of the firm’s capital. During his stint at Wertheim, Mr. Schoenfeld became one of the biggest money makers at the firm.

Finally, in 1997, after Wertheim was bought by Schroders of the U.K., Mr. Schoenfeld decided to go out on his own. He started out managing about $100 millionv; the fund has grown over eightfold in the intervening years.

At present, Mr. Schoenfeld is entertaining the notion of opening a private equity fund, since players in that field are engaged in similar activities and have the advantage of long lock-ups of capital. Also, he thinks perhaps his firm should be more active in Asia.

Meanwhile, he is watching the PeopleSoft-Oracle battle like a hawk. Knowing that Mr. Schoenfeld has taken an interest, the management of People-Soft might just want to pack their bags.

Ms. Peek is a former managing director of Wertheim Schroder, where she worked with Mr. Schoenfeld.