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
Definition-Characteristics-Fees-Strategies-Risk-Overview-Conclusion
• Caracteristics:
• Light regulation• Almost complete flexibility in investments
• Ability to borrow in an effort to enhance returns
• Investors include only wealthy individuals and institutions
Definition-Characteristics-Fees-Strategies-Risk-Overview-Conclusion
• 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.
Definition-Characteristics-Fees-Strategies-Risk-Overview-Conclusion
• 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%)
Definition-Characteristics-Fees-Strategies-Risk-Overview-Conclusion
• Hedge Fund Strategies:
• Each managers have his own strategy• 4 categories are brought out:
• Arbitrage• Event- Drive• Equity based• Macro
Definition-Characteristics-Fees-Strategies-Risk-Overview-Conclusion
• Arbitrage Strategies:
• Fixed income based
• Convertible
• Relative Value
Definition-Characteristics-Fees-Strategies-Risk-Overview-Conclusion
• Event Driven:
• Activist
• Merger arbitrage
• Distressed securities
Definition-Characteristics-Fees-Strategies-Risk-Overview-Conclusion
• Equity Based:
• Equity long/short
• No hedged equity
Definition-Characteristics-Fees-Strategies-Risk-Overview-Conclusion
• Macro :
• Global macro
• Emerging market
Definition-Characteristics-Fees-Strategies-Risk-Overview-Conclusion
• Risk exposure:
• Leverage effect• Systemic risk• Non transparency• Non regulation• Short Selling effect
Definition-Characteristics-Fees-Strategies-Risk-Overview-Conclusion
In 10 years the number of hedge fund has doubled
Definition-Characteristics-Fees-Strategies-Risk-Overview-Conclusion
Including performance gains, overall AUM is estimated to be $1.8 trillion as of 12/31/12
Definition-Characteristics-Fees-Strategies-Risk-Overview-Conclusion
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
Definition-Characteristics-Fees-Strategies-Risk-Overview-Conclusion
• 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
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