Hedge Fund

Summary

• Definition• Characteristics• Fees• Strategies• Risk• Overview• Conclusion

Definition-Characteristics-Fees-Strategies-Risk-Overview-Conclusion

• Definition• Investment made in order to cover the risk of adverse price movements in a security, by taking an offsetting position in a related security, such as an option or a short sale.

• Reckless and aggressive investment


• Caracteristics:

• Light regulation• Almost complete flexibility in investments

• Ability to borrow in an effort to enhance returns

• Investors include only wealthy individuals and institutions


• Fees that reward managers for performance:

• Management Fees (1% to 4%)• Performance Fees (10% to 40%)• The top 25 hedge fund managers earn more than all 500 of the CIO in the S&P 500.

http://en.wikipedia.org/wiki/S&P_500


• Best hedge fund managers (Forbes 2012):

• David Tepper• Firm: Appaloosa Management• Earnings: $2.2 billion• Portfolio: $15 billion (ANR=30%)

• Carl Icahn• Firm: Icahn Capital• Earnings: 1.9 billion• Portfolio: $23 billion (ANR=28%)


• Hedge Fund Strategies:

• Each managers have his own strategy• 4 categories are brought out:

• Arbitrage• Event- Drive• Equity based• Macro


• Arbitrage Strategies:

• Fixed income based

• Convertible

• Relative Value


• Event Driven:

• Activist

• Merger arbitrage

• Distressed securities


• Equity Based:

• Equity long/short

• No hedged equity


• Macro :

• Global macro

• Emerging market


• Risk exposure:

• Leverage effect• Systemic risk• Non transparency• Non regulation• Short Selling effect


In 10 years the number of hedge fund has doubled


Including performance gains, overall AUM is estimated to be $1.8 trillion as of 12/31/12


Multi-Strategy and Event-Driven were the largest positive contributors to hedge fund performance in 2012, while Managed Futures and Dedicated Short Bias were the only negative contributors


• Hedge funds have started to play an important role in financial markets

• They have affected important aspects of financial intermediation

• They have increased the volatility of stock market

• Hedge funds need more regulation

MERRY CHRISTMAS

Hedge Fund

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