Global stock markets may have surged in the first quarter, generating their second straight double-digit quarterly gains, but Richard Perry barely participated.

The founder of Perry Capital did post a net composite return of 4.83 percent for the three-month period. But it greatly lagged the widely following indexes such as the MSCI World index, which climbed 10.94 percent and the S&P 500, up 12.58 percent. The reason: Perry is pretty cautious these days.

In his quarterly letter to clients, the hedge fund manager noted that while the global equity markets benefitted from the European Central Bank’s easing, he continued to run a low-beta, well-hedged portfolio invested in stressed, distressed and event-driven situations with catalysts that should unlock value.

The one-time merger arbitrage specialist has morphed into an event-driven specialist, mining restructurings, mergers, acquisitions, reorganizations, spinoffs and legal outcomes — among other events — which, he stresses, “typically resolve on their own time frame and are less dependent on market movements.”

And his first quarter portfolio and gains shed an interesting light on how these event-driven managers operate.

Perry founded Perry Capital in 1988 after toiling in a number of capacities at Goldman, Sachs & Co., including in equity trading. While working on Robert Rubin’s risk arbitrage desk he is credited with helping to hire a number of hedge fund luminaries — ESL Partners’ Edward Lampert, Och-Ziff Capital Management’s Daniel Och, Eton Park Capital Management’s Eric Mindich and Farallon Capital Management’s Thomas Steyer.

In his first full 19 years running Perry Capital, he never suffered a losing year. He also has racked up double-digit returns in 16 of the 23 full years he has been running his New York City–based hedge fund. However, he has been in the red in two of the past four years, including in 2011 when Perry Partners lost 4.4 percent and Perry Partners International fell more than 7 percent.

He points out in his first-quarter letter that his fund’s largest individual risk exposure was tier-1 preferred positions in U.K., which he adds performed well during the first quarter. Tier 1 is a bank’s core capital while tier-1 preferreds are frequently called “hybrid instruments” because they contain both debt and equity features.

Perry tells clients The Royal Bank of Scotland (RBS) tier-1 bonds rose about 40 percent during the period, noting the bank continued to make progress de-risking its balance sheet. “As RBS exits the European Commission restructuring period at the end of April, we expect more flexibility regarding dividend payments and further liability management,” Perry adds.