Section A Group 6
Abhay Sharma 1A
Aniruddh Srivastava 9A
Devansh Doshi 16A
Manasi Jain 23A
Sachin Gupta 38A
Vidooshi Joshi...
Biggest insider-trading scandal in HEDGE FUND
history
Rajat Gupta had tipped off Raj Rajaratnam, the owner of $3 billion G...
Aggressively Managed
Portfolio
High Initial Minimum
Investment
Largely Illiquid High Risk High Returns
HEDGE
FUNDS
 Formula 2/20: Manager receives 2% of assets under
management and 20% of profits made annually
 Hurdle Rate : Minimum re...
Treasury
Fund of
Funds
Family
offices
Pension
funds
Endowm
ents
Private
banks
Long Only
• A strategy in which a hedge
fund owns long positions in
securities
• Looking for return to the
upside to outpe...
Long/Short
• Using both the strategies
• Say 70% of the stocks are
long traded and 30% are
short sold
• Then the differenc...
Global Macro
• Investment in stocks,
bonds, & other derivative
securities
• Highly leveraged directional
bets on underlyin...
Managed portfolios Diversified
Professional management of
money
Mutual Funds
Risk averse
Investments
Fundamental based
Available to all
investors
Hedge Funds
Aggressively pursue
risk
Hig...
Mutual Funds
Lesser fees
Need for high
disclosure
Regulated
Hedge Funds
Higher fees
No need for
disclosures
Generally
unre...
Absolute Returns
The Sharpe Ratio
Benchmarks
• Analyze relative returns versus a benchmark example the S&P 500 Index
Quart...
Qualitative Factors
• Evaluations of management
A fund must have good, strong management just like a
company
• Back-office...
 A novelty in India
 New investment style in a country that traditionally prefers
buying and holding stocks
 Domestic i...
 India-focused foreign funds returned 12.3 percent last year
 Overseas funds are not regulated
 SEBI imposes
 A 1,000-...
Source: CFA Institute
Overall, Hedge Fund index performance outdoes Market Index by a
wide margin
Indian Hedge Funds performance weak compared with Indian
Market Index
• Long-term outperformance by hedge funds occurred solely due to
outperformance in down markets
• The converse is also tru...
 Assets under management approximately Rs. 20 Crs
($3.28 million)
 Advisory fund: returned 11.86 percent so far this yea...
 Aiming to raise $1.25 billion for the latest fund to increase
its stake in Facebook
 The firm is known for its long pos...
When Warren Buffett searched for his successors to
manage Berkshire Hathaway’s stock investments,
he had the world as his ...
THANK YOU
Hedge Funds
Hedge Funds
Hedge Funds
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Hedge Funds

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This talk about hedge funds in simple terms. It covers hedge fund managers, investors, strategies, comparison between hedge funds and mutual funds, performance measurement, Indian scenario, and historical performance.

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  • Hedge funds performing in this manner have a rare ability to win a war by losing every battle. In the two-thirds of the time the market rises, hedge funds will underperform and their investors might get antsy. In the one-third that really counts for long-term compounding, hedge funds outperform but do so at a time when investors are licking their wounds from losing money in other strategies. So it’s heads you win, tails I lose. Each battle along the way, investors have something to complain about. Only after a long period of time will investors look back and realize hedge funds had done right by them all along
  • Hedge Funds

    1. 1. Section A Group 6 Abhay Sharma 1A Aniruddh Srivastava 9A Devansh Doshi 16A Manasi Jain 23A Sachin Gupta 38A Vidooshi Joshi 55A
    2. 2. Biggest insider-trading scandal in HEDGE FUND history Rajat Gupta had tipped off Raj Rajaratnam, the owner of $3 billion Galleon fund about Warren Buffett's confidence-boosting $5 billion investment in the teetering investment bank in September 2008, during the depths of the market turmoil.
    3. 3. Aggressively Managed Portfolio High Initial Minimum Investment Largely Illiquid High Risk High Returns HEDGE FUNDS
    4. 4.  Formula 2/20: Manager receives 2% of assets under management and 20% of profits made annually  Hurdle Rate : Minimum returns to be generated annually before 20% commission clause is applicable  High water mark: Benchmark decided based on previous year’ performance, based on which 20% commission paid only if present returns exceed the benchmark
    5. 5. Treasury Fund of Funds Family offices Pension funds Endowm ents Private banks
    6. 6. Long Only • A strategy in which a hedge fund owns long positions in securities • Looking for return to the upside to outperform their benchmarks • If the BSE SENSEX is a fund's benchmark and is up 10%, and the hedge fund is up 15%, the extra 5% between the two is the return generated by the portfolio manager Short Only • A strategy in which a hedge fund only sells stock short • A very risky strategy • Portfolio managers running short only portfolios have been absolutely crushed over the past couple of years as the rising market tide has lifted most securities
    7. 7. Long/Short • Using both the strategies • Say 70% of the stocks are long traded and 30% are short sold • Then the difference between the two is 40% • This is called as the net exposure to markets Market Neutral • The concept is to reduce the net exposure to markets to zero • Removes any impact of market movements • Fund manager relies solely on his or her ability to pick stocks • Achieved by • Equal investment in long and short strategies • Reducing beta of overall fund to zero
    8. 8. Global Macro • Investment in stocks, bonds, & other derivative securities • Highly leveraged directional bets on underlying assets • Limited capacity issues because of diversity of investments, market size & global perspective Quantitative Hedge Funds • Quantitative hedge fund managers often employ computer programmers who comb the statistical models and data looking to find alpha that hide behind market abnormalities • This can be exploited by super high-frequency trading programs that can buy and sell thousands of stocks or futures instantly • Unfortunately, they do not always anticipate market commentary
    9. 9. Managed portfolios Diversified Professional management of money
    10. 10. Mutual Funds Risk averse Investments Fundamental based Available to all investors Hedge Funds Aggressively pursue risk Highly speculative investment Available to only high net worth investors
    11. 11. Mutual Funds Lesser fees Need for high disclosure Regulated Hedge Funds Higher fees No need for disclosures Generally unregulated
    12. 12. Absolute Returns The Sharpe Ratio Benchmarks • Analyze relative returns versus a benchmark example the S&P 500 Index Quartile Chart • the top quartile of peers on an absolute return comparison, standard deviation, and a variety of other metrics
    13. 13. Qualitative Factors • Evaluations of management A fund must have good, strong management just like a company • Back-office operations Including trading, compliance, administration, marketing, systems, etc • Scale It takes a subjective opinion to determine whether a fund's strategy will be impacted by having too large of a fund and by how much returns will be affected
    14. 14.  A novelty in India  New investment style in a country that traditionally prefers buying and holding stocks  Domestic investors are not used to the high fees commanded in the hedge fund industry  High success threshold in a country where plain vanilla bank deposits offer nearly double-digit returns
    15. 15.  India-focused foreign funds returned 12.3 percent last year  Overseas funds are not regulated  SEBI imposes  A 1,000-investor limit  A 10 million rupee (US$188,000) minimum investment requirement  A minimum size of 200 million rupees (US$3.8 million)  Typically, India-based hedge funds are relatively risk-averse and invest in illiquid equity funds
    16. 16. Source: CFA Institute Overall, Hedge Fund index performance outdoes Market Index by a wide margin
    17. 17. Indian Hedge Funds performance weak compared with Indian Market Index
    18. 18. • Long-term outperformance by hedge funds occurred solely due to outperformance in down markets • The converse is also true. Hedge funds underperformed when the market rose, rising 21.8% per annum less than index returns • The market “won” more often and won by a great margin than when it lost • But, it turns out the compounded return of hedge funds and the market during this period was roughly the same. The math of compounding tells this story
    19. 19.  Assets under management approximately Rs. 20 Crs ($3.28 million)  Advisory fund: returned 11.86 percent so far this year.  Top 5 Holdings (%)  Syndicate Bank (12.60)  Satyam Computer Services Ltd. (12.20)  Mahindra & Mahindra Financial Services Ltd. (12.10)  Dabur India Ltd. (11.70)  Godrej Consumer Products Ltd. (10.17)
    20. 20.  Aiming to raise $1.25 billion for the latest fund to increase its stake in Facebook  The firm is known for its long position  Apple  Google  LinkedIn  Major Stakes in:  MakeMyTrip  Just Dial
    21. 21. When Warren Buffett searched for his successors to manage Berkshire Hathaway’s stock investments, he had the world as his oyster. Sure enough, he hired two hedge fund managers!
    22. 22. THANK YOU

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