Hedge Fund Strategies: An Overview of the Various Investment Strategies Offered by Hedge Funds in the Marketplace Today
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Hedge Fund Strategies: An Overview of the Various Investment Strategies Offered by Hedge Funds in the Marketplace Today

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This presentation highlights the various strategies employed by hedge funds. With “Hedge Fund Strategies,” users will learn about these strategies and how they work to provide investors with ...

This presentation highlights the various strategies employed by hedge funds. With “Hedge Fund Strategies,” users will learn about these strategies and how they work to provide investors with portfolio diversification, risk management, and reliable returns.

Of the many strategies that hedge funds use, this new presentation features:
• Global Macro
• Event Driven
• Relative Value
• Credit Funds
• Long/Short Equity Funds
• Quantitative Funds
• Multi-Strategy Funds, and
• Managed Futures Funds

Learn more about the global hedge fund industry at: www.hedgefundfundamentals.com.

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Hedge Fund Strategies: An Overview of the Various Investment Strategies Offered by Hedge Funds in the Marketplace Today Hedge Fund Strategies: An Overview of the Various Investment Strategies Offered by Hedge Funds in the Marketplace Today Presentation Transcript

  • HEDGE FUND STRATEGIES An Overview of the Various Investment Strategies Offered by Hedge Funds in the Marketplace Today
  • Hedge Fund Strategies Overview Hedge funds offer qualified investors a unique partnership, with the ability to invest alongside them. Table of Contents: Overview 3 While hedge funds first began as a way to offer investors a balanced - or marketneutral – approach to investing, the methods for delivering returns have evolved through the years. How Do Hedge Funds Invest? • Global Macro • Event Driven • Relative Value • Credit Funds • Long/Short Equity Funds • Quantitative Funds • Multi-Strategy Funds • Managed Futures 4 5 6 7 8 9 10 11 New Hedge Fund Partnerships 12 This presentation provides a brief overview of some of the strategies used by hedge funds in the marketplace today. 2
  • Hedge Fund Strategies Overview Hedge funds offer investors a breadth of investment options. No two hedge funds are identical, but funds can be categorized broadly by the type of strategies they employ. While the individual investment decisions made by each fund vary, hedge funds are united by the same fundamental goals: • Portfolio Diversification – Prevents over-concentration in specific assets • Risk Management – Helps anticipate and avoid volatility in the marketplace • Reliable Returns Over Time – Provides opportunities for asset growth The accompanying chart outlines popular hedge fund strategies by number and value of assets managed as of October 2013. . 3
  • Hedge Fund Strategies How do hedge funds invest? Global Macro Investment managers use economic variables and the impact these have on markets to develop investment strategies. Managers employ a variety of techniques including discretionary and systematic analysis, quantitative and fundamental approaches, and long and short-term holding periods. Strategies are based on future movements in underlying instruments rather than the realized valuation discrepancies between securities. According to Preqin’s 2014 Report on Hedge Funds, global macro is the second most commonly used strategy by fund managers, accounting for 29 percent of the funds represented. Source: 2014 Preqin Global Hedge Fund Report 4
  • Hedge Fund Strategies How do hedge funds invest? Event Driven Investment managers maintain positions in companies currently or prospectively involved in corporate transactions including mergers, restructurings, financial distress, tender offers, shareholder buybacks, debt exchanges, security issuance or other capital structure adjustments. Managers pursue strategies based on fundamental characteristics (as opposed to quantitative) and specific future developments. Position exposure includes a combination of sensitivities to equity markets, credit markets and company-specific developments. As the 2014 Preqin Report on Hedge Funds, event driven funds account for a relatively small number of active funds, but represent a larger proportion of the total capital managed -12 percent of industry assets under management. Source: 2014 Preqin Global Hedge Fund Report 5
  • Hedge Fund Strategies How do hedge funds invest? Relative Value Investment managers maintain positions based on valuation discrepancy in the relationship between multiple securities. Managers employ a variety of fundamental and quantitative techniques; investments range broadly across equity, fixed income, derivative or other security types. Positions may involve future corporate transactions, but these positions are predicated on realization of a pricing discrepancy between related securities rather than the outcome of the corporate transaction. According to the 2014 Preqin Report on Hedge Funds relative value strategies represent 13% of top level strategies employed. Source: 2014 Preqin Global Hedge Fund Report 6
  • Hedge Fund Strategies How do hedge funds invest? Credit Funds Credit funds invest in fixed income securities, often taking large investment positions using the ownership stake to participate in the management of a company. Credit is still a relatively limited strategy in the hedge fund universe – compared to other strategies outlined in this presentation, however it has rapidly grown in popularity in recent years. These funds traditionally focused on corporate credit, however many funds have expanded investment into sovereign debt and distressed debt holdings as well in recent years. Source: 2014 Preqin Global Hedge Fund Report 7
  • Hedge Fund Strategies How do hedge funds invest? Long/Short Equity Funds Investment managers maintain long and short positions in equity and equity derivative securities. Managers employ a wide variety of techniques to arrive at an investment decision, including both quantitative and fundamental techniques. Strategies can be broadly diversified or narrowly focused on specific sectors and can range broadly in terms of levels of net exposure, leverage employed, holding period, concentrations of market capitalizations and valuation ranges of typical portfolios. According to Preqin’s 2014 Report on Hedge Funds, 55 percent of all funds under the long/short category are long/short equity funds and long/short strategies. Source: 2014 Preqin Global Hedge Fund Report 8
  • Hedge Fund Strategies How do hedge funds invest? Quantitative Funds An investment fund that trades positions based on computer models built to identify investment opportunities. These models can utilize an unlimited number of variables, which are programmed into complex, frequently-updated algorithms and controlled by a portfolio manager. Quantitative funds models are used as a means of executing a number of other hedge fund strategies, including: • Long / Short Equity • Global Foreign Exchange • Global Fixed Income • Futures and Forwards 9
  • Hedge Fund Strategies How do hedge funds invest? Multi-Strategy Funds Investment managers maintain a variety of processes to arrive at an investment decision, including both quantitative and fundamental techniques. Strategies can be broadly diversified or narrowly focused on specific sectors and can range broadly in terms of levels of net exposure, leverage, holding period, concentrations of market capitalizations and valuation ranges. As the Preqin 2014 Report on Hedge Funds details, multi-strategy funds account for 9% of all assets managed across the direct hedge funds on the Preqin database. Various strategies are employed in a multi strategy fund. Some examples are: convertible bond arbitrage, equity long/short, statistical arbitrage and merger arbitrage Source: 2014 Preqin Global Hedge Fund Report 10
  • Hedge Fund Strategies How do hedge funds invest? Managed Futures Trading (CTAs) Managed futures traders–also known as commodity trading advisors (CTAs)–are able to invest in up to 150 global futures markets. They trade in these markets using futures, forwards and options contracts in everything from grains and gold, to currencies, stock indexes and government bond futures. Because they can go both long and short they have the ability to make money in both rising and falling markets. CTAs have been regulated by the Commodity Futures Trading Commission (CFTC) since 1974 and are overseen by the National Futures Association (NFA), a selfregulatory organization. 11
  • Hedge Fund Strategies Institutional Investors Seeking Out New Hedge Fund Partnerships According to Preqin’s 2014 Global Hedge Fund Report, investors expect to increase hedge fund allocations to their existing portfolios over the next 12 months. Beyond multi-manager funds, public pension funds are the most active type of institutional investor seeking new hedge funds, with the proportion of the total number of fund mandates issued by this group rising throughout the year. This is in line with recent growth trends, which indicate that in 2007, around 196 public pension funds invested in hedge funds - today that number is around 377. The accompanying chart outlines how investors are expected to allocate – by strategy – over the next 12 months. Source: 2014 Preqin Global Hedge Fund Report 12