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almost any opportunity in any market where it foresees impressive gains at reduced risk
Hedge Funds
Alfred W. Jonesis credited with the creation
of the first hedge fund in 1949 Estimated to be a $2.5 trillion industry and growing every year approximately 10,000 active hedge funds This accounts for about 1% of the combined global equity and bond market
sector such as Renaissance Technologies, Old Lane, DE Shaw and Och-Ziff Capital Management has already made its foray into the Indian market. Securities and Exchange Board of India (SEBI) intends to provide a broad-based, registered and regulated platform to these entities, depending on their individual track records.
expectations Short positions exposure matches long positions Short finances long Market neutral investment
Market Exposure
knowledge
Manager Compensation
Fixed fee 1% to 2% Incentive fee 10% to 30% [20% typical] of
Manager Styles
Event-Driven Market Trend/Timing Opportunistic Short Sellers Sector Funds Global Macro Fund of Funds Derivatives
Investing Multi-Strategy
Event-Driven
Distressed Securities bankruptcy reorganization equity and debt Risk Arbitrage position in acquired and acquirer trade on collars and other options hedge with derivatives
Market Trend/Timing
Timing U.S. Markets exploit technical analysis Timing Global Markets
seek country opportunities
Opportunistic Investing
Largest Category of Hedge Fund Value
liquidation value, book value, out-of-favor
Growth
future earnings potential
Short Sellers
Seeks overvalued equities to short may hedge market exposure or may not
Global Macro
Currency speculation with futures instruments Forecast influence of global macro trends on
Fund of Funds
Select multiple managers Use track records for choice Promote diversification major issue, since good funds are closed to small investors.
own, with the anticipation of purchasing it in the future, at a reduced cost. Arbitrage: Simultaneous buying and selling of a financial instrument in different markets to profit from the difference between the prices investing in anticipation of a specific event merger transaction, hostile takeover, spin-off, exiting of bankruptcy proceedings, etc.
Leverage: Borrowing money for investment
purposes.
securities - of companies about to enter or exit financial distress or bankruptcy, often below liquidation value. Hedging: Buying/selling a security to offset a potential loss on an investment
levels of risk and can deliver returns uncorrelated with the performance of the stock market. Delivers more stable returns under most market conditions due to the fund-of-fund managers ability and understanding of the various hedge strategies. Significantly reduces individual fund and manager risk. Eliminates the need for time-consuming due diligence otherwise required for making hedge fund investment decisions.
diversified investments across a large variety of hedge funds. Allows access to a broader spectrum of leading hedge funds that may otherwise be unavailable due to high minimum investment requirements. Is an ideal way to gain access to a wide variety of hedge fund strategies, managed by many of the worlds premier investment professionals, for a relatively modest investment.
Contemporary issues
Economic issues Hiked fees (fixed + performance based) Manipulations/malpractices Raja rajratnam scandal
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