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.

1. HEDGE FUND STRATEGIES
An Overview of the Various Investment Strategies Offered by Hedge Funds in the Marketplace Today

2. Hedge Fund Strategies
Overview
Hedge funds offer qualified investors a
unique partnership, with the ability to invest
alongside them.
Table of Contents:
Overview
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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
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New Hedge Fund Partnerships
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This presentation provides a brief overview
of some of the strategies used by hedge
funds in the marketplace today.
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3. 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.
.
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4. 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
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5. 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
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6. 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
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7. 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
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8. 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
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9. 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
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10. 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
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11. 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.
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12. 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
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