Hedge Fund Strategies


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Hedge funds began as a way to offer investors a balanced – or market-neutral – approach to investing. More recently, however, the methods that hedge funds use to deliver returns have evolved along with the industry.

The hedge fund industry currently manages $2.63 trillion, a record high in assets. While no two hedge funds are identical, funds can be categorized by their strategies. Their decisions and strategies may differ, but hedge funds are united by fundamental goals: portfolio diversification, risk management, and reliable returns over time.

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Hedge Fund Strategies

  1. 1. Hedge Fund Strategies Managed Funds Association | February 2014
  2. 2. Overview Hedge funds offer qualified investors a unique partnership and investment opportunity shaped by the strategy and experience of the fund manager and their team. While hedge funds first began as a way to offer investors a balanced - or market-neutral – approach to investing, the methods for delivering returns has evolved through the years. This presentation provides a brief overview of some of the strategies used by hedge funds in the marketplace today. 2
  3. 3. How Do Hedge Funds Invest? Hedge funds manage $2.63 trillion* in global assets. Hedge funds offer investors many investment options. No two hedge funds are identical, but funds can be categorized by their strategies. Each fund makes different investment decisions but hedge funds are united by 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 *Source: Hedge Fund Research, January 2014 3
  4. 4. Hedge Fund Strategies Here are examples of some of the more prevalent hedge fund strategies: Long/Short Equity Funds: Maintain long and short positions in equity and equity derivative securities Global Macro: Analyze market impact of economic variables to develop investment strategies Event Driven: Maintain positions in companies currently or prospectively involved in corporate transactions (mergers, restructurings, financial distress, tender offers, shareholder buybacks, debt exchanges, security issuance or other capital structure adjustments) Relative Value: Maintain positions based on valuation discrepancy in the relationship between multiple securities 4
  5. 5. Hedge Fund Strategies (cont’d) Credit Funds: Invest in fixed income securities, taking large investment positions and using the ownership stake to participate in the management of a company Quantitative Funds: Trades positions based on computer models built to identify investment opportunities Multi-Strategy Funds: Utilize a variety of processes to arrive at an investment decision, including both quantitative and fundamental techniques Managed Funds Trading (CTAs): Investors trade in these markets using futures, forwards and options contracts in everything from grains and gold, to currencies, stock indexes and government bond futures. 5
  6. 6. Hedge Fund Investing Strategies The partnership between hedge funds and institutional investors is expected to continue growing in the coming years. According to research firm Preqin, institutional investors expect to add more hedge funds to their portfolio over the next 12 months: Source: The 2014 Preqin Global Hedge Fund Report 6