Alternative investments, including hedge funds and managed futures, aim to provide absolute returns regardless of market conditions, utilizing strategy-driven methodologies. Investors include institutional entities and high-net-worth individuals, but there are challenges in data analysis and misconceptions about the industry. Regulatory requirements apply once a hedge fund surpasses $150 million in assets under management, focusing on client asset protection, disclosure accuracy, and investment practices.

1. Hedge Funds

2.  What is Alternative Investments
Alternative investments are investment products
outside traditional investments like stocks, bonds, cash
or property. The alternative investment industry
includes hedge funds, funds of funds, managed futures
funds and other non-traditional asset classes.
Alternative investment managers are distinguished by
their objective to deliver absolute returns, regardless of
market conditions. Using strategy-driven and research
backed investment methodologies, alternative
managers aim to provide broad asset diversification
benefits such as lowered volatility (risk) and the
potential for improved performance.
2

3. Economics Finance
Marketing Technology
3

4. Fund
Fund Size Determination
Fundraising
Qualified Investors
Fund Investment – Trading
Trading NAV
Returns Ideology
Holdings
Subscription & Redemption
4

5. Investment across
Asset Classes
Structured as Private
Partnerships and
open to only Limited
Number of Investors
Lock up & Notice
Period - Alternatives
Less Regulated and
Publicly Traded
Fee Structure
Fund of Funds
Investment
5

6. Event-Driven Strategies:
Merger Arbitrage
Distressed
Restructuring
Activist Shareholder
Special Situation
Relative Value Strategies:
Convertible
Arbitrage Fixed
Income
Asset Backed
Securities (ABS)
General Fixed Income
Volatility
Multi-Strategy
Macro Strategies – Global
Economic Trends
6

7. 7
Institutional Investors
• Insurance Companies
• Pension Funds
• University Endowments
• Other Institutional Investors
High Net-worth Individuals
Family Offices

8. •Portfolio of Traditional Investments
Potentially Higher
Returns
•Hedge Portfolio RiskDiversification
•Difficult to analyze the deviation of Asset Class
Risk Measures –
Standard Deviation
•Difficult to get the historical data and correlate it with
the Investment Strategy
Data Issues – Lack of
Data
Dynamic Investment Strategy
Lack of Persistence – Funds with better historical returns may not
provide better than average returns in future
8

9. MYTH – The hedge fund industry is unregulated and opaque.
• For Individual - $1,000,000 net worth or, alternatively, a minimum income of
$200,000 in each of last two years and a reasonable expectation of reaching the
same level in the current year.
• For Institutions - $5,000,000 net worth in invested assets
MYTH – Main Street doesn’t benefit from the Hedge Funds:
• 66% of the money comes from the Institutional Investors.
MYTH – Hedge Fund is a Small Market:
• There are currently nearly 10,000 individual funds in the marketplace with more
than $2.7 trillion in AUM.
MYTH – Less Investments in Technology by HF Managers:
• 58% of HF Managers are making investments in Technology
9

10.  Trading NAV:
◦ Calculated on the Daily Basis
◦ It helps in determining at the end of the trading day
whether to buy or sell a particular share.
◦ NAV = Total Investments / Holding
◦ $50 = $50,000,000 / 1,000,000
10

11. • Management Fees (Typically 1% of AUM)
Management
Fees
• High Watermark Provisions – Incentive Fees (%
of the returns achieved above benchmark)
• Hurdle Rate – Minimum rate that must be
earned before Incentive fee
Incentive
Based Fees
11

12.  Registration of a Hedge Fund is required when the AUM of the
fund is more than $150 million.
◦ Portfolio management processes, including allocation of
investment opportunities among clients, consistency with
client objectives and applicable regulatory restrictions.
◦ Trading practices, including procedures by which you
satisfy your best execution obligation, use client brokerage
to obtain research and other services (i.e., soft dollar
arrangements) and allocate aggregated trades among
clients
◦ Proprietary trading and personal trading activities of
supervised persons in a manner reasonably designed to
prevent the misuse of material nonpublic information
12

13. ◦ Accuracy of disclosures made to fund investors, clients
and regulators, including account statements and
advertisements
◦ Safeguarding of client assets from conversion or
inappropriate use by advisory personnel.
◦ Accurate creation of required records and their
maintenance in a manner that secures them from
unauthorized alteration or use and protects them from
untimely destruction.
◦ Marketing of advisory services, including the use of
solicitors.
13

14. ◦ Processes to value client holdings and assess fees
based on those valuations, including ensuring that
these processes are appropriate in view of the fact
that you receive compensation based on those
valuations.
◦ Business continuity plans, including plans to
address disaster recover and, for smaller firms,
deaths of owners and/or key personnel.
14

15.  Investment Strategy
 Investment Process
 Source of Competitive Advantages
 Historical Returns
 Valuation and Returns calculations method
 Longevity
 Amount of AUM
 Management Style
 HF Manager Risk
 Reputation
 Growth Plans
 Systems for Risk Management
 Appropriateness for Benchmarks
15

16. Q&A
Thank You,
Samarth Dang
Navatar Group
16