hedge funds
TRANSCRIPT
HEDGE FUNDSAlternative Investments, Types of Hedge Funds, and Hedge Fund Strategies
ALTERNATIVE INVESTMENTSAlternative investment universe: traditional asset classes used in non-traditional strategiesAlternative investment universe: non-traditional asset classes
Alternative investment markets encompass:HedgefundsVenture CapitalPrivate EquityReal Estate
ALTERNATIVE INVESTMENTSAlternative investments carry:
• Additional diversification, premium yields for taking on different risks (liquidity risk, information risk)
• Improved risk/return characteristics• Alternative Asset managers possess flexibility to make investment
decisions «skill based» strategies• Focus on absolute returns instead of relative returns: performing well in
any market situation
HEDGE FUNDSNo standard definition• Ability to short the market, to leverage the portfolio to multiply gains, and to hold high concentrations of
positions• No industry-wide classifications of hedge fund strategies, each major industry group has its own
classification system
Attractions• Expectation of strong returns (historical data)• Low correlations to traditional asset classes and ability to provide diversification• Absolute returns / Traditional managers that have relative return orientation
Misconceptions• All hedge funds are risky investments: many funds have low degree of risk inherent in their strategies.• Hedge Funds are illiquid: not necessarily the case
STRUCTURAL ORGANIZATIONStructural Organization-Role of a Prime Broker-Other differences: fee structures, lock in period, redemption windows & side pockets
Key Participants and Roles-Investment Managers, Board of Directors, Administrator, Transfer Agent
TYPES OF HEDGE FUNDS
HEDGE FUND STRATEGIESMarket Trend (Directional / Tactical) Strategies• Global Macro• Managed Futures/CTAs• Emerging Markets• Equity Long/short• Short Bias
HEDGE FUND STRATEGIESGlobal Macro: Aims to from changes in global economies, typically brought about by shifts in government policy which impact interest rates, in turn affecting currency, stock, and bond markets. Participates in all major markets using leverage and derivatives.
- Highest returns, most volatile, & high correlation to stocks and bonds.Market Trend: Managed futures are investments that allow the investor to access the world's futures markets through commodity trading advisors (CTAs). Highly specialized and focus on expertise. Futures and currencies – global basis.
-Reduced volatility, low correlation with traditional assetsEmerging Markets: Equity or fixed income, usually no shorting.
HEDGE FUND STRATEGIESEquity Long / Short: involves share based investing on both the long and short side of the market across a range of sectors, categories and regions. Represents largest amount of hedge fund assets. Highly correlated with market.Short Bias: Short sale of over-valued securities, by either selling borrowed stock or using derivatives to create synthetic shorts. Some of these dedicated short funds are among the first to foresee corporate collapses. Skilled at scrutinizing company fundamentals and financial statements.Event Driven StrategiesDistressed Securities Merger / Risk Arbitrage
Arbitrage StrategiesMarket NeutralConvertible ArbitrageFixed Income ArbitrageEquity ArbitrageMortgage Arbitrage
European AIFsQualified Investment Alternative Investment Fund (QIAIF)Retail Investment Alternative Investment Fund (RIAIF)Common Contractual Fund (CCF)TrustSpecialized Investment Fund (SIF)
WHERE ASSETS ARE MANAGEDNew York still big wig..
Push for Miami?“Hospitable and tax-free environment”“Access to Europeans”
Thanks politicians.
Each One is DifferentIII Capital ManagementRWC Partners – UK BasedSkyBridge CapitalScout Ventures
WHAT HAS BEEN HAPPENINGThe highs set in 2011 have been
surpassed
Push to L Cap
EXAMPLELet’s take Bridgewater Associates and break down who they are.
The firm serves institutional clients including pension funds, endowments, foundations, foreign governments and central banks.Focuses on economic trends, such as inflation, currency exchange rates, and U.S. gross domestic product.
The company divides its investments into two basic categories: (1) Beta investments, whose returns are generated through passive management and standard market risk, and (2) Alpha investments, whose goal is to generate higher returns that are uncorrelated to the general market and are actively managed
Pure Alpha: Launched in 1989. Designed to balance risk among a variety of non-correlated assets through active management. It includes 30 or 40 simultaneous trading positions and has an average annualized return of 18%. Only lost money 3 of last 20 years.All Weather: Launched in 1996 and highlighted low fees, global inflation-linked bonds and global fixed-income investments. High, risk adjusted returns. In April 2009, after the collapse of Lehman Brothers, the fund moved into "safe portfolio" mode which included nominal and inflation-linked bonds and gold instead of equities, emerging market debt, and commodities. Pure Alpha Major Markets: At the time, it was the largest hedge fund launch (2011) with 7.5 billion to invest. An investment vehicle similar to the company's Pure Alpha fund but with enhanced liquidity by focusing on the major markets such as European bonds
3 Billion vs 150 B buyback
Bill Ackman, a hedge fund manager was shorting Herbalife saying that it was a Ponzi scheme and Carl had the
opposite view and was buying the stock.
Can you imagine making nearly a billion dollar bet that a stock is over valued?
1.
2.
LONG TERM CAPITAL MANAGEMENT
“Twenty years ago, one bond-trading hedge fund grew from launch to over $100 billion in assets in less than three years. It saw yearly returns of over 40 percent. But by 1998, that firm was primed to expose America’s largest banks to more than $1 trillion in default risks. The demise of the firm, Long-Term Capital Management (LTCM), was swift and sudden. In less than one year, LTCM had lost $4.4 billion of its $4.7 billion in capital.”
• Almost collapsed financial system• Positions at peak were over 1 Trillion• Experts, aren’t always the biggest experts
BENEFITS SUMMARY1. High level of expertise, tactical allocation2. Lack of attention on your part, if need be3. Tax efficiency 4. Lock In Periods, stay your course5. Prestige
HEDGE FUNDSAlternative Investments, Types of Hedge Funds, and Hedge Fund Strategies By Chance Owen