hedge funds -presenatation final one

7/31/2019 Hedge Funds -Presenatation Final One

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Hedge Fundsas an investment

option

By-Harleen Kaur D-21Gaurav Dave D-35Sunit Kalkoti D-46Sachin Yadav D-11Rajesh Kumar D-56


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What is hedge fund?A hedge fund is an investment fund that can undertake a wider range of

investment and trading activities than other funds, but which isgenerally only open to certain types of investor specified by regulators.

Investors are typically institutions, such as pension funds, universityendowments and foundations, or high net worth individuals, who are

considered to have the knowledge or resources to understand thenature of the funds.

As a class, hedge funds invest in a diverse range of assets, but they mostcommonly trade liquid securities on public markets.

They employ a wide variety of investment strategies, and make use of techniques like long & short positions, use arbitrage, buy & sell

undervalued securities, trade options or bonds, and invest in almost anyopportunity in any market where it foresees impressive gains at reduced

risk.


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Continued Hedge funds are typically open-ended, meaning that investors can invest

and withdraw money at regular, specified intervals.

The value of an investment in a hedge fund is calculated as a share of thefund's net asset value, meaning that increases and decreases in the value of

the fund's investment assets (and fund expenses) are directly reflected inthe amount an investor can later withdraw.

Most hedge fund investment strategies aim to achieve a positive return oninvestment whether markets are rising or falling.

Because hedge funds are not sold to the public or retail investors, the fundsand their managers have historically not been subject to the same

restrictions that govern other funds and investment fund managers

As of 2009, hedge funds represented 1.1% of the total funds and assets heldby financial institutions. As of April 2012, the estimated size of the global

hedge fund industry was US$2.13 trillion


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Key Characteristics of Hedge Funds Hedge funds vary

enormously in termsof investment returns,volatility and risk

Hedge funds have theability to deliver non-market correlatedreturns.

Many hedge fundshave as an objectiveconsistency of returnsand capitalpreservation ratherthan magnitude of returns.

Most hedge funds aremanaged byexperienced

investmentprofessionals who aregenerally disciplinedand diligent.

Pension funds, endowments,insurance companies, privatebanks and high net worthindividuals and families investin hedge funds to minimizeoverall portfolio volatility andenhance returns.

Most hedge fundmanagers are highlyspecialized and tradeonly within their areaof expertise and

competitiveadvantage.

Hedge funds benefit by heavilyweighting hedge fund managersremuneration towards performanceincentives, thus attracting the bestbrains in the investment business.In addition, hedge fund managersusually have their own moneyinvested in their fund.


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Features of hedge fundAn accredited investor is an individual person with a minimum net worth of US$1 million or, alternatively, a minimum income of US$200,000 in each of the

last two years and a reasonable expectation of reaching the same income level incurrent year.

For banks and corporate entities, the minimum net worth is US$5 million ininvested assets.

Maximum no of investors per fund is 100

Management fees are calculated as a percentage of the fund's net asset value andtypically range from 1% to 4% per annum, with 2% being standard

The performance fee is typically 20% of the fund's profits during any year, thoughthey range between 10% and 50%

Hedge funds share only the profits and not the losses, such fees create an incentivefor high-risk investment management. Performance fee rates have fallen since thestart of the credit crunch-Warren Buffet


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Benefits of Hedge Funds Positive returns in both rising and falling equity and bond markets.

Inclusion of hedge funds in a balanced portfolio reduces overall portfolio risk andvolatility and increases returns.

Wide choice of hedge fund strategies to meet their investment objectives.

Academic research proves hedge funds have higher returns and lower overall risk thantraditional investment funds.

Hedge funds provide an ideal long-term investment solution, eliminating the need tocorrectly time entry and exit from markets.

Adding hedge funds to an investment portfolio provides diversification not otherwiseavailable in traditional investing.


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Hedge Funds- Figures

The world's largest hedge fund manager in 2011, BridgewaterAssociates, had $70 billion under management as of 1 March 2012

As of February 2011, 61% of worldwide investment in hedge fundscomes from institutional sources

In April 2012, the hedge fund industry reached a record high of US$2.13 trillion total assets under management


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ExampleBlackstone has built long-term relationships with many of the leadinginstitutional investors around the worldBlackstone has more than 1,500 public and corporate pension funds,academic endowments and charitable foundations, sovereign wealthfunds and other investors in over 52 countries.

http://www.blackstone.com/limited-partners/about-our-limited-partners

Investors by category bycapital raised % of total

Limited partners by geographyby capital raised % of total


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Some facts about Indian HedgeFunds

India-focused hedge funds ranked among world's top performersThe Eurekahedge Indian Hedge Fund Index returned over 5% inthe first eight months of 2010 vis--vis 2% gains by benchmark Sensex in the same period.

The $15bn FoHF portfolio of London-based hedge fund giantMan Group, for example, is 10-15% exposed to emergingmarkets and 1% exposed to India.Indian hedge fund industry has grown 30% this year while Indiafocused hedge funds have increased 7% in September alone


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Hedge Funds in India

Incorporated in 2005 Invested in publicly traded Indian securities

Funds are focussed on indian public and private equitymarket

Launched India Deep Value fund Achieve long term gains in the Indian stock marketthrough deep value investing

Provide boutique fund management services Launched Indea Absolute Return Fund, investing in Indiaand Indian companies abroad

India Capital Fund - Mauritius based Monsoon Capital Equity Value Fund - Mauritius based Karma Capital Management, LLC Atyant Capital Atlantis India Opportunities Fund


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Hedge Funds are like mutual funds in some ways .Investments professionals in a hedge fund pool inmoney from investors to be managed exactly like

the mutual funds do. And subject to some minorrestrictions , investors in hedge funds can withdrawtheir money as they can in mutual fund.

Hedge funds Vs Mutual funds


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Hedge funds Vs Mutual fundsHedge Funds

Focus on absolute returns.

Can invest in any asset-Stocks, bonds, commodities ,real estate, etc..

They can run highlyconcentrated portfolios.

Mutual Funds

Focus on relative returns. returns should be higher thanbenchmark.

Work within risk controlled andcompliance framework set upby regulator, hence very riskyasset classes are prohibited forinvestment.Objective is to protect investorsinvestments hence they go fordiversification.


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Meant for accredited investorswhose net worth is more than1.5 million dollars.

Hedge funds are virtuallyunregulated.

They are not marketedpublicly.

Meant for people at large,even small investors canparticipate.

Heavily regulated sinceinvestor safety is most

important requirement.

They are sold as products.


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Investments depending on the manager's view of the economic or market outlook.

Managers profit from large up and down movements using both long and short positions,resulting in returns similar to that of a straddle.

Straddle is composed of buying a put and call option on the same investment & thegain is directly related to the volatility of the investment.

The more investments fluctuates, the higher the return and vice versa.

Strategies Adopted By Hedge Fund

Managed Futures:


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Also known as Special Situation or Special Opportunity strategies.

Invest in companies that are expecting a large impact on the price of the stock over a short period of time.

Tries to capitalize on the changing prices of stocks caused by events such as corporate restructuring, stock buybacks, bond upgrades, expected earnings surprises, and any other reason a company's stock price maychange.

E.g. distressed securities A hedge fund would wait for an impending reorganization or bankruptcy of a

company.Risk (Merger) Arbitrage -the hedge fund simultaneously buys a company that is being acquired and sellsthe short the stock of the acquirer.

The investment philosophy of Fair Value Capital in Indian market is Event Driven.

Event Driven:


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Dedicated Shorts:Sells securities short in anticipation of being able to re-buy them at afuture date at a lower price.

Managers asses investment options based on his or her opinion of theovervaluation of securities, the market.

Used as a hedge to offset long-only portfolios and by those who feel themarket is approaching a bearish cycle.

The goal is to earn returns by maintaining net short exposure (moredollars short than long) in securities. It is common to see a short

bias, and still hold some securities long a hedged position.


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Convertible Arbitrage:

An investing strategy that involves the long position on a convertible security anda short position in its converting common stock.

Strategy that involves purchasing a portfolio of convertible securities, generallyconvertible bonds.

Hedging a portion of the equity risk by selling short the underlying commonstock.

When a stock declines, the associated convertible bond will decline less, becauseit is protected by its value as a fixed-income instrument and it pays interestperiodically
http://www.google.co.in/imgres?imgurl=http://www.smartstockmarket.com/images/Investment-Strategy-For-Fixed-Income-Bonds.jpg&imgrefurl=http://www.smartstockmarket.com/bond-market/fixed-income-bond/Fixed-Rate-Bonds-And-Monthly-Income.html&usg=__zYcuxaAQwKDhze0WbRCfNVe_VCo=&h=400&w=300&sz=20&hl=en&start=4&sig2=OWJkVvS9v0dN8XTz7XEZBw&zoom=1&itbs=1&tbnid=Lc5mz-Dju8ARIM:&tbnh=124&tbnw=93&prev=/images?q=fixed+income&hl=en&gbv=2&tbs=isch:1&ei=R7fqTMGNLMe2cbvqhZYK


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Global Macro Hedge Fund :

.

Strategies Continued

1 Attempts to profit from shift in the market due

to economic, political & government events

2 Directional Relative value

3 Black Wednesday :Sept 16 th 1922 George Soros made a $1 billion profit
http://www.google.co.in/imgres?imgurl=http://www.smartstockmarket.com/images/Investment-Strategy-For-Fixed-Income-Bonds.jpg&imgrefurl=http://www.smartstockmarket.com/bond-market/fixed-income-bond/Fixed-Rate-Bonds-And-Monthly-Income.html&usg=__zYcuxaAQwKDhze0WbRCfNVe_VCo=&h=400&w=300&sz=20&hl=en&start=4&sig2=OWJkVvS9v0dN8XTz7XEZBw&zoom=1&itbs=1&tbnid=Lc5mz-Dju8ARIM:&tbnh=124&tbnw=93&prev=/images?q=fixed+income&hl=en&gbv=2&tbs=isch:1&ei=R7fqTMGNLMe2cbvqhZYK


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Equity Market Neutral :.


1

Seeks to exploit differences in stock pricesby being long & short in stocks within thesame industry ,sector

2 It acts as a hedge against the market risk


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Fixed-Income arbitrage:.


1

Exploits the inefficiencies in the

pricing of bonds

2 Steady returns & low volatility

3 Example : Swap spread arbitrage


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Thank You

hedge funds -presenatation final one

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