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HEDGE FUND OVERVIEW
AN INTRODUCTION TO HEDGE FUNDS FROM KINGDOM RIDGE CAPITAL, LLC
Kingdom Ridge Capital, LLC
DEFINITION OF A HEDGE FUND
Broadly speaking, a hedge fund has at least some of the following characteristics:
• Actively managed portfolios
• Take short positions (i.e., sell securities they do not own)
• May use derivatives (call options, put options, etc.)
• Use leverage (if only from shorting)
• Tend to charge investors a small fee for running their firm (management fee)
• Usually take a share of the profits they deliver to investors (performance fee)
• Are only available to sophisticated/high net worth investors
Kingdom Ridge Capital, LLC
HEDGE FUND STRATEGIES (I)
There are several strategies that hedge funds can use to generate returns:
Equity Hedge
• Long/Short (Kingdom Ridge Capital is a L/S equity hedge fund)
• Event-Driven
• Distressed
Arbitrage
• Relative Value
• Fixed Income
Kingdom Ridge Capital, LLC
HEDGE FUND STRATEGIES (II)
Directional/Tactical
• Global Macro
• Commodity Trading Advisors
• Emerging Markets
Multi-Strategy
• Combination of multiple strategies
Kingdom Ridge Capital, LLC
WHY DO INVESTORS USE HEDGE FUNDS?
Increase personal investment diversification
• Hedge the risk of equity market downturns
Reduce market correlation of their portfolios
• Make money when market goes up
• Make money when market goes down
Alignment of investment manager compensation with performance delivered to
investors
• Mutual fund managers measured on relative returns
• Hedge fund managers measured on absolute returns
Kingdom Ridge Capital, LLC
FOR MORE INFORMATION
• United States Securities & Exchange Commission:
https://www.sec.gov/answers/hedge.htm
• Investopedia: http://www.investopedia.com/articles/investing/102113/what-
are-hedge-funds.asp
• Managed Funds Association: https://www.managedfunds.org/hedge-fund-
investors/hedge-fund-glossary/
• Barclay Hedge: http://www.barclayhedge.com/research/educational-
articles/hedge-fund-strategy-definition/what-is-a-hedge-fund.html
• International Asset Management: http://www.iam.uk.com/Portals/0/pdf/lse-
publications/An-Introduction-to-Hedge-Fund-Strategies.pdf
• Kingdom Ridge Capital’s Unofficial Guide for Aspiring Equity Analysts:
http://kingdomridgecapital.blogspot.com
Kingdom Ridge Capital, LLC

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Kingdom Ridge Capital's Hedge Fund Overview

  • 1. HEDGE FUND OVERVIEW AN INTRODUCTION TO HEDGE FUNDS FROM KINGDOM RIDGE CAPITAL, LLC Kingdom Ridge Capital, LLC
  • 2. DEFINITION OF A HEDGE FUND Broadly speaking, a hedge fund has at least some of the following characteristics: • Actively managed portfolios • Take short positions (i.e., sell securities they do not own) • May use derivatives (call options, put options, etc.) • Use leverage (if only from shorting) • Tend to charge investors a small fee for running their firm (management fee) • Usually take a share of the profits they deliver to investors (performance fee) • Are only available to sophisticated/high net worth investors Kingdom Ridge Capital, LLC
  • 3. HEDGE FUND STRATEGIES (I) There are several strategies that hedge funds can use to generate returns: Equity Hedge • Long/Short (Kingdom Ridge Capital is a L/S equity hedge fund) • Event-Driven • Distressed Arbitrage • Relative Value • Fixed Income Kingdom Ridge Capital, LLC
  • 4. HEDGE FUND STRATEGIES (II) Directional/Tactical • Global Macro • Commodity Trading Advisors • Emerging Markets Multi-Strategy • Combination of multiple strategies Kingdom Ridge Capital, LLC
  • 5. WHY DO INVESTORS USE HEDGE FUNDS? Increase personal investment diversification • Hedge the risk of equity market downturns Reduce market correlation of their portfolios • Make money when market goes up • Make money when market goes down Alignment of investment manager compensation with performance delivered to investors • Mutual fund managers measured on relative returns • Hedge fund managers measured on absolute returns Kingdom Ridge Capital, LLC
  • 6. FOR MORE INFORMATION • United States Securities & Exchange Commission: https://www.sec.gov/answers/hedge.htm • Investopedia: http://www.investopedia.com/articles/investing/102113/what- are-hedge-funds.asp • Managed Funds Association: https://www.managedfunds.org/hedge-fund- investors/hedge-fund-glossary/ • Barclay Hedge: http://www.barclayhedge.com/research/educational- articles/hedge-fund-strategy-definition/what-is-a-hedge-fund.html • International Asset Management: http://www.iam.uk.com/Portals/0/pdf/lse- publications/An-Introduction-to-Hedge-Fund-Strategies.pdf • Kingdom Ridge Capital’s Unofficial Guide for Aspiring Equity Analysts: http://kingdomridgecapital.blogspot.com Kingdom Ridge Capital, LLC