Hedge Fund Ppt 3c2o37

VIDYA SHANKAR PRASAD SECTION-1809 ROLL No.-B42 REGISTRATION No-10801772

Concept of hedge fund

“A hedge fund is a fund which invest in

almost any opportunity in any market where it foresees impressive gains at reduced risk”

Hedge Funds Alfred W. Jones is 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 s for about 1% of the combined global equity and bond market

Hedge Funds in India Reputed names in the global hedge funds

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, ed and regulated platform to these entities, depending on their individual track records.

Theory of Hedge Funds “Arbitrage in

expectations” Short position’s exposure matches long position’s Short finances long Market neutral investment

Expected Return Long Position Spread Short Position

Market Exposure

Basis of Hedge Fund Returns Manager skill in identifying opportunities Not derived from ive long position Focused on “imperfect” market sectors Depend critically upon special skills and

knowledge

Defining Hedge Funds Freedom from ICA (1940) of SEC controls on: short-selling cross-holding incentive compensation derivatives positions

Defining Hedge Funds Limitations on: number of U.S. investors (99 maximum) solicitation of U.S. investors public advertising and disclosure Information problems: no public performance records data vendors only maintain “live fund” data

Manager Compensation  Fixed fee 1% to 2% Incentive fee 10% to 30% [20% typical] of

positive return High water mark provision

Manager Styles Event-Driven Market Trend/Timing Opportunistic

Investing Multi-Strategy

Short Sellers Sector Funds Global Macro Fund of Funds Derivatives

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-Term Hold active trading to exploit opportunity

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

liquid instruments Deals at macro level

Fund of Funds  Select multiple managers  Use track records for choice  Promote diversification major issue, since good funds are closed to small investors.

Commodities/ Options/ Futures Speculate in commodities markets

Strategies of hedge fund Short-selling: Sale of a security that you do not

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.

Strategies of hedge fund cont. investing in deeply discounted

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

Investors class in hedge fund Pension fund Insurance companies Private companies High net-worth individual individual

Benefits of a Hedge Fund Provides an investment portfolio with lower

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 manager’s 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.

Benefits of a Hedge Fund of Funds contd. Allows for easier istration of widely

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 world’s 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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