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Hedge Fund Strategies Multi strategy funds

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A brief overview of a hedge fund strategy used in alternative investment markets.

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Page 1: Multi Strategy Funds- Hedge Fund Strategies

Hedge Fund Strategies

Multi strategy funds

Page 2: Multi Strategy Funds- Hedge Fund Strategies

Index:

1. Definition2. Origins3. Risks4. Benefits5. Strategies

Multi strategy funds

Page 3: Multi Strategy Funds- Hedge Fund Strategies

Multi-strategy funds are a variety of investment strategies. Regardless of the directional movement in equity, interest rate or currency markets, the investment objective is to deliver consistently positive returns.

(Starr, 2004)

1. Definition

Page 4: Multi Strategy Funds- Hedge Fund Strategies

The migration of talented and entrepreneurial investment professionals from large asset management firms to specialised firms was a result of the extensive growth in hedge funds.

Necessity to find new ways to increase fund capacity

Launch of new funds with different strategies

(Starr, 2004)

2. Origins

Page 5: Multi Strategy Funds- Hedge Fund Strategies

The diversification of strategies can prejudice the returns of a single strategy during a very "hot" period;

Nevertheless, in the long term, the performance and consistency of multi-strategy funds should prove their worth, delivering low volatility, and high risk-adjusted returns both in absolute and relative terms.

(Starr, 2004)

3. Risks

Page 6: Multi Strategy Funds- Hedge Fund Strategies

Capacity to reduce exposure by shifting into cash or remain invested in sub-optimal opportunities, when the inefficiencies in a specific expertise of a single-strategy fund wane;

Flexibility to capitalise on the best opportunities, allocating capital away from less-attractive strategies to those that offer superior opportunities;

High risk-adjusted returns skills from successful multi-strategy managers , because multi-strategy funds are not managed by those with merely mediocre skills in a variety of strategies.

(Starr, 2004)

4. Benefits

Page 7: Multi Strategy Funds- Hedge Fund Strategies

Market neutral: Following this strategy, the performance of the hedge fund will remain completely unaffected by market-wide trends.

(Donald & Lacey, 2003)

7. 5. Strategies

Page 8: Multi Strategy Funds- Hedge Fund Strategies

Fixed income long short: Evolves the investment strategies on private and public debt instruments with:

Fixed maturities and rates Their derivatives

(Donald & Lacey, 2003)

5. Strategies

Page 9: Multi Strategy Funds- Hedge Fund Strategies

Equity Long Short: rely on a combination of short and long positions in order to partially hedge the risk of adverse market-wide moves.

(Donald & Lacey, 2003)

5. Strategies

Page 10: Multi Strategy Funds- Hedge Fund Strategies

Merger Arbitrage: by shorting the stock of the acquiring corporation and taking a long position in the takeover target, seek to profit from corporate mergers and acquisitions.

(Donald & Lacey, 2003)

5. Strategies

Page 11: Multi Strategy Funds- Hedge Fund Strategies

Event driven: Evolves to profit from significant corporate

events as bankruptcies, recapitalizations, mergers and acquisitions;

The performance is similar that of distressed strategies or merger arbitrage, depending on the business cycle:

“Corporate Life Cycle Investing”

(Donald & Lacey, 2003)

5. Strategies

Page 12: Multi Strategy Funds- Hedge Fund Strategies

Convertible Arbitrage: Profits from differences between convertible bonds a company issues and the prices of the common stock.

(Donald & Lacey, 2003)

5. Strategies

Page 13: Multi Strategy Funds- Hedge Fund Strategies

Distressed Securities: generally focus on corporate bonds. On the assumption that the ultimate payoff (either in or out of bankruptcy) will be favorable, should be taken a long position in the distressed company’s bonds.

(Donald & Lacey, 2003)

5. Strategies

Page 14: Multi Strategy Funds- Hedge Fund Strategies

Macro: According George Soros’ Quantum Fund, macro hedge fund managers employ a “top down” approach to investment decisions, where they examine geopolitical and macroeconomic data, assuming leveraged positions in the equity, fixed income, and currency markets that correspond to their predictions of future economic developments.

(Donald & Lacey, 2003)

5. Strategies

Page 15: Multi Strategy Funds- Hedge Fund Strategies

Donald,E. and Lacey, Jr., 2003, ‘Democratizing the hedge fund: Considering the Advent of Retail Hedge Funds’, Third Year Paper, Harvard Law School;

Starr, E., 2004, ‘Multi-Strategy Hedge Funds - Strategy Outline’, in Eureka Hedge, viewed 3 August 2013, from http://www.eurekahedge.com/news/04may_archive_japan_multistrategy.asp

References