XIV.  HEDGE FUNDS
A.  DEFINITIONS <ul><li>Hedge fund – an investment vehicle, designed for wealthy individuals and for institutions, that is...
A.  DEFINITIONS <ul><li>Accredited Investor (from the SEC internet site:  http://www.smallbusinessnotes.com/financing/sece...
A.  DEFINITIONS <ul><li>a director, executive officer, or general partner of the company selling the securities;  </li></u...
A.  DEFINITIONS <ul><li>Fund of Funds – Hedge funds that collect pools of money from a number of investors to invest in a ...
A.  DEFINITIONS <ul><li>Black Box – An investment that is not fully understood by the investors;  an investment that has s...
B.  HEDGE FUND OPERATIONS <ul><li>Hedge funds were originally designed to protect against potential market losses through ...
B.  HEDGE FUND OPERATIONS <ul><li>Hedge funds have expanded in investment strategy as the pool of money seeking to invest ...
B.  HEDGE FUND OPERATIONS <ul><li>The investment management fees are compounded in a “fund of funds” – each layer of manag...
B.  HEDGE FUND OPERATIONS <ul><li>Withdrawing money from hedge funds can be difficult – as private investments, there are ...
C.  HEDGE FUND EXAMPLES <ul><li>Long Term Capital Management: Messy RIP in 1998 </li></ul><ul><li>Bear Sterns Funds Collap...
Upcoming SlideShare
Loading in …5
×

Course Outline Part XVI (Hedge Funds)

715 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
715
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
20
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Course Outline Part XVI (Hedge Funds)

  1. 1. XIV. HEDGE FUNDS
  2. 2. A. DEFINITIONS <ul><li>Hedge fund – an investment vehicle, designed for wealthy individuals and for institutions, that is established to use aggressive strategies to obtain above market returns, such as leveraged purchases and/or sales, selling short, program trading, swaps, arbitrage, and derivatives </li></ul>
  3. 3. A. DEFINITIONS <ul><li>Accredited Investor (from the SEC internet site: http://www.smallbusinessnotes.com/financing/secexemptions.html) - An &quot;accredited investor&quot; includes: </li></ul><ul><ul><li>banks, insurance companies, business development companies, registered investment companies, or small business investment companies; or </li></ul></ul><ul><ul><li>an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million; </li></ul></ul><ul><ul><li>a charitable organization, corporation or partnership with assets exceeding $5 million; </li></ul></ul>
  4. 4. A. DEFINITIONS <ul><li>a director, executive officer, or general partner of the company selling the securities; </li></ul><ul><li>a business in which all the equity owners are accredited investors; </li></ul><ul><li>a natural person with a net worth of at least $1 million; </li></ul><ul><li>a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or </li></ul><ul><li>a trust with assets of at least $5 million, not formed to acquire the securities offered, and whose purchases are directed by a sophisticated person. </li></ul>
  5. 5. A. DEFINITIONS <ul><li>Fund of Funds – Hedge funds that collect pools of money from a number of investors to invest in a number of other hedge funds </li></ul><ul><li>Feeder Fund – A hedge fund that collects pools of money from a number of investors to invest in a specific hedge fund </li></ul><ul><li>Private Partnership – A group of investors pooling money to invest, includes a limited number of qualified individuals or pension and insurance funds </li></ul>
  6. 6. A. DEFINITIONS <ul><li>Black Box – An investment that is not fully understood by the investors; an investment that has stated objectives, but which does not provide enough information to investors to allow full understanding of the “black boxes’” investment strategy </li></ul><ul><li>Due Diligence – The duty of an investment advisor to learn the details of an investment’s operations and potential risks and rewards </li></ul>
  7. 7. B. HEDGE FUND OPERATIONS <ul><li>Hedge funds were originally designed to protect against potential market losses through a number of approaches such as program trading, options, and short selling </li></ul><ul><li>Hedge funds are restricted by law to no more than 100 investors, this rule is fulfilled by requiring high initial investment amounts </li></ul><ul><li>Hedge funds can operate without any disclosure – does not have to comply with SEC rules detailing operations </li></ul>
  8. 8. B. HEDGE FUND OPERATIONS <ul><li>Hedge funds have expanded in investment strategy as the pool of money seeking to invest in them has increased </li></ul><ul><li>Hedge funds generally charge very high management fees – 2.0% of assets plus 20% of all profits (ex. – there is 100 million under management, which returns 10% in a year – the fund manager receives a $2 million base fee plus $2 million as a performance fee, for an effective fee of 4.0% on returns of 10%). See </li></ul>
  9. 9. B. HEDGE FUND OPERATIONS <ul><li>The investment management fees are compounded in a “fund of funds” – each layer of management extracts their own investment management fees </li></ul><ul><li>If a hedge fund acquires more than 5% of the equity of a single company, it is required to report this holding to the SEC, making the fund’s investment public </li></ul><ul><li>Under Rule 13-F, hedge funds and investment managers with assets under management in excess of $100 million are required to report to the SEC every quarter their long holdings from the previous quarter – however, they are not required to disclose their short or option positions </li></ul>
  10. 10. B. HEDGE FUND OPERATIONS <ul><li>Withdrawing money from hedge funds can be difficult – as private investments, there are no requirements for immediate release of funds for withdrawal, resulting in longer redemption times in unfavorable markets </li></ul><ul><li>Plans under consideration by the Treasury Department would require some regulation of hedge funds </li></ul>
  11. 11. C. HEDGE FUND EXAMPLES <ul><li>Long Term Capital Management: Messy RIP in 1998 </li></ul><ul><li>Bear Sterns Funds Collapse </li></ul><ul><li>HFR Asset Management </li></ul><ul><li>Renaissance Technologies </li></ul><ul><li>John Paulson </li></ul><ul><li>There are Some Institutions that Track Hedge Fund Performance , and </li></ul>

×