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Evolution of Hedge Funds (Powerpoint)

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Evolution of Hedge Funds (Powerpoint)

  1. 1. Evolution of Hedge Funds Leadership Forum Managed Funds Association Feb. 6,2006 Ginger Szala, Futures Magazine
  2. 2. Darwin and the Dollar <ul><li>What defines a hedge fund? </li></ul><ul><li>1) Leverage </li></ul><ul><li>2) Long/short abilities </li></ul><ul><li>3) Broader markets </li></ul><ul><li>4) Structure provides freedom for manager to pursue multiple strategies </li></ul>
  3. 3. Estimated Number of Hedge Funds 1990 – 2005 Extract from HFR Industry Report – Year End 2005
  4. 4. Estimated Growth of Assets / Net Asset Flow Hedge Fund Industry 1990 – 2005 Extract from HFR Industry Report – Year End 2005
  5. 5. Estimated Growth of Assets / Net Asset Flow Fund of Funds 1990 – 2005 Extract from HFR Industry Report – Year End 2005
  6. 6. In Comparison <ul><li>Managed Futures Growth ($billions) </li></ul>
  7. 7. Comparison of performance <ul><li>HFRI fund weighted comp. Index </li></ul><ul><li>1990 5.81 </li></ul><ul><li>1991 32.19 </li></ul><ul><li>1992 21.22 </li></ul><ul><li>1993 30.88 </li></ul><ul><li>1994 4.10 </li></ul><ul><li>1995 21.50 </li></ul><ul><li>1996 21.10 </li></ul><ul><li>1997 16.79 </li></ul><ul><li>1998 2.62 </li></ul><ul><li>1999 31.29 </li></ul><ul><li>2000 4.98 </li></ul><ul><li>2001 4.62 </li></ul><ul><li>2002 (1.45) </li></ul><ul><li>2003 19.55 </li></ul><ul><li>2004 9.03 </li></ul><ul><li>2005 9.35 </li></ul><ul><li>Barclay CTA Index </li></ul><ul><li>1990 21.02 </li></ul><ul><li>1991 3.73 </li></ul><ul><li>1992 (0.91) </li></ul><ul><li>1993 10.37 </li></ul><ul><li>1994 (0.65) </li></ul><ul><li>1995 13.64 </li></ul><ul><li>1996 9.12 </li></ul><ul><li>1997 10.89 </li></ul><ul><li>1998 7.01 </li></ul><ul><li>1999 (1.19) </li></ul><ul><li>2000 7.86 </li></ul><ul><li>2001 0.84 </li></ul><ul><li>2002 12.36 </li></ul><ul><li>2003 8.69 </li></ul><ul><li>2004 3.30 </li></ul><ul><li>2005 1.71 </li></ul>
  8. 8. Evolution of hedge fund styles <ul><li>Makeup in 1990s </li></ul><ul><li>Macro 71.1% </li></ul><ul><li>Equity Hedge 5.3% </li></ul><ul><li>Event Driven 3.8% </li></ul><ul><li>Fixed Income (total) 3.3% </li></ul><ul><li>Distressed securities 2.4% </li></ul><ul><li>Equity market neutral 1.7% </li></ul><ul><li>Equity non-hedge 0.6% </li></ul><ul><li>Merger arbitrage 0.6% </li></ul><ul><li>Convertible arb 0.5% </li></ul><ul><li>Emerging markets (total) 0.4% </li></ul><ul><li>Sector (total) 0.3% </li></ul><ul><li>Short selling 0.1% </li></ul><ul><li>Make up in 2005 </li></ul><ul><li>Equity Hedge 29.0% </li></ul><ul><li>Event Driven 13.5% </li></ul><ul><li>Relative value arb 12.6% </li></ul><ul><li>Macro 11.1% </li></ul><ul><li>Fixed Income (total) 8.1% </li></ul><ul><li>Distressed securities 4.7% </li></ul><ul><li>Equity non-hedge 4.4% </li></ul><ul><li>Sector (total) 4.3% </li></ul><ul><li>Convertible arbitrage 4.3% </li></ul><ul><li>Emerging markets 3.5% </li></ul><ul><li>Equity market neutral 2.4% </li></ul><ul><li>Merger arb 1.5% </li></ul><ul><li>Market Timing 0.4% </li></ul><ul><li>Short selling 0.3% </li></ul><ul><li>Regulation D 0.2% </li></ul>
  9. 9. Estimated Growth of Assets / Net Asset Flow Macro 1990 – 2005 Extract from HFR Industry Report – Year End 2005
  10. 10. Estimated Growth of Assets / Net Asset Flow Equity Hedge 1990 – 2005 Extract from HFR Industry Report – Year End 2005
  11. 11. Estimated Growth of Assets / Net Asset Flow Event-Driven 1990 – 2005 Extract from HFR Industry Report – Year End 2005
  12. 12. Who invests in hedge funds? <ul><li>Combined U.S and Non-US </li></ul><ul><li>1) Fund of hedge funds 40% </li></ul><ul><li>2) High net worth 23% </li></ul><ul><li>3) Institutions 12% </li></ul><ul><li>4) Family Office 11% </li></ul><ul><li>5) Private Banks 10% </li></ul><ul><li>6) Foundations/Endowments 4% </li></ul><ul><li>Source: UBS, Note: Based on percentage share of assets under management world wide </li></ul>
  13. 13. New Rules <ul><li>SEC registration </li></ul><ul><li>Feb. 1, 2006 deadline </li></ul><ul><li>Inside the numbers </li></ul><ul><li>Roughly 4000 managers globally, 714 registered with SEC. Another 70 pending. </li></ul>
  14. 14. Are we still evolving? <ul><li>New worlds in hedge funds </li></ul><ul><li>New name? </li></ul>
  15. 15. Insight from insiders <ul><li>Bruce Cleland, President and CEO of Campbell & Co. </li></ul><ul><li>John Kelly, President and CEO of Man Investments Inc. </li></ul><ul><li>Mark Rosenberg, Chairman and CIO of SSARIS Advisors </li></ul><ul><li>Mark Rzepczynski, CEO of JWH & Co. </li></ul>
  16. 16. Other slides Global assets Structured assets
  17. 17. Growth of Hedge Funds and Managed Futures vs. Global Financial Assets & Derivatives 1993 – 2004 <ul><li>Sources: </li></ul><ul><ul><li>Bank for International Settlements • Banker Magazine • Bridgewell • Cap Gemini </li></ul></ul><ul><ul><li>Compeer • Hedge Fund Research • ING • International Financial Services London </li></ul></ul><ul><ul><li>Investment Company Institute • J.P. Morgan • Merrill Lynch • NYSE </li></ul></ul><ul><ul><li>OECD • Swiss Re </li></ul></ul>1997 79.1 401 27.9 41.4 148.4 368 33 Year $Tn $Bn $Tn $Tn $Tn $Bn $Bn 1993 59.2 194 18.5 16.3 93.9 168 26 1994 66.0 192 20.4 20.2 106.6 167 25 1995 72.3 209 23.4 27.0 122.7 186 23 1998 88.3 411 31.4 94.3 214.0 375 36 1999 101.1 497 37.4 101.8 240.3 456 41 2000 99.2 529 35.5 109.5 244.2 491 38 2001 98.0 580 35.9 135.0 268.9 539 41 2002 103.4 677 32.9 165.5 301.8 626 51 2003 126.1 907 43.3 234.0 403.4 820 87 2004 141.8 1,062 45.9 298.4 486.1 930 132 CAGR 7.55% 15.22% 7.88% 27.45% 14.68% 15.33% 14.49% 1996 76.3 281 25.8 35.5 137.5 257 24 Hedge Funds + Managed Futures Global Bonds + Equities + Banks Pen Funds + Insurance + Mutual Funds Global OTC + ET Derivatives Total Global Fin Assets & Derivatives Hedge Funds Managed Futures
  18. 18. Evolution of hedge fund structures in the US Vehicles for investing in hedge funds Source: Investment Company Act of 1940. Schematic Illustration 1 Additional qualification standards may be necessary if futures are traded. 2 Although funds with an exemption under Section 3(c)(7) of the Investment Company Act of 1940, as amended, may have an unlimited number of investors, most funds will generally limit the total number of investors to 499 to avoid reporting requirements under the Securities Exchange Act of 1934, as amended. This is provided for informational purposes only and is not meant to be an exhaustive review of legal issues regarding hedge fund exemptions. Please consult with legal counsel for additional information. There are risks inherent in hedge funds and funds of hedge funds. <ul><li>US legislation: 3(c)(1) (1949) </li></ul><ul><li>Maximum investors: 99 </li></ul><ul><li>Typical minimum investment: $1 million </li></ul><ul><li>Investor qualifications: Accredited 1 </li></ul><ul><li>Individual </li></ul><ul><li>- income in excess of $200,000 in each of the preceding two years and expect the same or more this year; </li></ul><ul><li>or </li></ul><ul><li>net worth (or joint net worth with spouse) of $1 million </li></ul><ul><li>Entity : $5 million net worth </li></ul><ul><li>US legislation: 3(c)(7) (1996) </li></ul><ul><li>Maximum investors: 499 2 </li></ul><ul><li>Typical minimum investment: $1 million </li></ul><ul><li>Investor qualifications: Qualified Purchasers & Accredited </li></ul><ul><li>Individual </li></ul><ul><li>- natural person to have at least $5 million in investments </li></ul><ul><li>certain other regulated high-net worth institutions (insurance companies, employee benefit plans, banks, etc.) </li></ul><ul><li>Entity: $25 million in investments </li></ul><ul><li>Development: Registered Hedge Funds (early 2000) </li></ul><ul><li>Maximum investors: Unlimited </li></ul><ul><li>Typical minimum investment: $25,000 </li></ul><ul><li>Investor qualifications: Accredited </li></ul><ul><li>Individual </li></ul><ul><li>a net worth of $1 million at the time of purchase; </li></ul><ul><li>or </li></ul><ul><li>income in excess of $200,000 in each of the preceding two year and expect the same income level in the current year </li></ul><ul><li>Entity: $1 million net worth </li></ul>
  19. 19. Comprised of over 5400 funds and fund of funds, HFR Database is the definitive source of hedge fund performance and information. HFR FOF Database & Directory provides investors with up-to-the-moment quantitative data and two-page state-of-the-art analytical reports on over 1800 Global Fund of Funds from HFR Database. HFR Industry Report – Year End 2005 Over 140 charts and graphs - a snapshot of the state of the alternative investment industry. The leading fully-transparent hedge fund index providing daily returns from eight distinct strategies representing the entire industry. The benchmarks of fund performance. 37 different categories by strategy, including the HFRI Fund Weighted Composite, which accounts for over 1600 funds listed on the HFR Database. Also: HFR's exclusive HFRI FOF Sub-Strategy Indices. Hedge Fund Managers report performance to HFR Database by using HFR ManagerLink, our simple web-based interface for adding and updating fund information. HFR Industry Products & Indices
  20. 20. HFRI Fund Weighted Composite Index – Historical Monthly Performance
  21. 21. Media Reference Guide Alternative Investment Industry Performance and Trends Provided courtesy of Hedge Fund Research, Inc. Date: 01/24/2006 Copyright 2006 – All Rights Reserved HFR Database HFR FOF Database & Directory HFR Industry Reports HFRI Indices HFRX Indices HFR ManagerLink
  22. 22. The Data The licensed/redistributed HFR Database, currently comprised of over 5400 funds and fund of funds, is available to all accredited investors. Information on our hedge fund universe of established and emerging managers is collected directly from the fund managers and/or their respective offshore administrators, while other pertinent information is culled from offering memoranda, onsite visits, and due diligence interviews. HFR Database is the foundation for the HFRI Indices , the industry's most widely utilized benchmark of hedge fund performance information. The HFRI Fund Weighted Composite alone is comprised of over 1600 funds from our database universe. Our staff Hedge Fund Research believes that accurate information on fund managers is critical to any alternative investment enterprise. To that end, our analysts have monitored and tracked performance and administrative data internally on over 9,000 domestic and international funds, offering comprehensive information not available from other commercial data providers. Hedge Fund Research, Inc. is the industry's most respected source for hedge fund data and performance information. Our flagship product offering, HFR Database, is a comprehensive tool tailored for alternative investment professionals seeking to analyze the hedge fund universe. The database integrates with multiple analytical software platforms and is updated bi-weekly with new fund information.
  23. 23. FRESH performance data, RECENTLY submitted by a BROAD spectrum of funds EACH and EVERY update HFR works directly with FUND MANAGERS to gain the most up-to-date and accurate fund info possible. We do not work with third party data providers. HFR FOF Database is updated bi-weekly. New FOFs added with every release Since its commercial debut in April 2003, the Database has more than tripled its fund coverage and now includes over 1800 FOFs. Two-page custom PDF profiles provide in-depth descriptive and graphical information on each fund State-of-the-art quantitative and qualitative analytical reports included as part of the Database. Updated reports are available bi-weekly for subscriber download. Top 50 FOFs Rankings available to subscribers Easy to Use listings sorted by Rate of Return, Sharpe Ratio, and Standard Deviation in 1, 3, and 5 year intervals give a clear view of the best performing funds on a bi-weekly basis. Database includes full Fund Contact, ROR and AUM data in MS Access and Excel format Exported directly from HFR Database's internal universe of over 9000 hedge funds and fund of funds. HFR FOFDB Highlights: The HFR FOF Database combines HFR’s industry-leading accurate and timely hedge fund data with an accompanying Directory of two-page state-of-the-art analytical reports providing investors with up-to-the-moment quantitative data and analysis on every FOF in the HFR Database.
  24. 24. HFRI Monthly Indices – 2005 Monthly Performance
  25. 25. Extracts from HFR INDUSTRY REPORTS <ul><li>HFR Industry Report – Year End 2005: </li></ul><ul><li>Industry insiders utilize HFR Industry Reports to gain a detailed picture of current trends as well as a historical perspective of the hedge fund industry. </li></ul><ul><li>The Report includes: </li></ul><ul><li>Over 140 pages of charts and graphs provided in PowerPoint format </li></ul><ul><li>Year End 2005 estimated total assets and net asset flows for entire industry and by strategy </li></ul><ul><li>Detailed breakout of Quarterly HFRI performance </li></ul><ul><li>HFRI Annual Performance Matrix 1993-2005 </li></ul><ul><li>Onshore and Offshore asset analysis breakouts </li></ul><ul><li>Risk/Return analysis by strategy: 1, 3 and 5-year summaries of Standard Deviation, Sharpe Ratio, Sortino Ratio, Up/Down Capture, Returns Distribution and Market Correlations </li></ul><ul><li>Supporting dataset in Excel spreadsheet format (optional) </li></ul>
  26. 26. HFRI Index Risk Return Comparison 2005 Extract from HFR Industry Report – Year End 2005
  27. 27. Estimated Growth of Assets / Net Asset Flow Convertible Arbitrage 1990 – 2005 Extract from HFR Industry Report – Year End 2005
  28. 28. Estimated Growth of Assets / Net Asset Flow Distressed Securities 1990 – 2005 Extract from HFR Industry Report – Year End 2005
  29. 29. Estimated Growth of Assets / Net Asset Flow Merger Arbitrage 1990 – 2005 Extract from HFR Industry Report – Year End 2005
  30. 30. Estimated Growth of Assets / Net Asset Flow Relative Value Arbitrage 1990 – 2005 Extract from HFR Industry Report – Year End 2005

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