HEDGEDUCATION - HEDGE FUND ARTICLES

Hedge funds typically earn income through a variety of fee structures charged to their clients. These fees are not only meant to cover fund administrative and operating costs, but also to reward employees and managers for providing positive returns to investors. The most common and well-known hedge fund fee structure combines both management and … Continue Reading

Hedge Fund managers spend endless amounts of time and money analyzing and determining the appropriate investments to hedge risk in their portfolios. Can any manager afford to disregard the risks in their business?
Originally set-up by Alfred Jones in 1949 to eliminate risk by holding long positions and short-selling other stocks, the Hedge Fund industry has … Continue Reading

By Seth Berlin
Thanks to globalization for adding another acronym to my already information-overloaded brain. This one is called “IRO” or Investment Research Outsourcing. Over the next five years it is an acronym you will hear again and again. IRO, loosely defined, is the offshoring of front-office work to a 3rd party provider.  In this article, … Continue Reading

There are many positions within a hedge fund that contribute to its overall success or the lack there-of. But while every player may be integral, hedge funds are a lot like a football team. The failure or success ultimately will be placed on the coach…or in this case, the Portfolio Manager.
The Portfolio Manager, … Continue Reading

Due to the usually large amount of assets that hedge funds manage, they are under intense pressure from investors to produce enviable returns. After all, the investor is paying hefty fees for the shrewdness and brilliance of the hedge fund manager. The investor is entrusting the manager with a substantial amount of capital … Continue Reading

In 2004, the Securities and Exchange Commission outlined a series of compliance requirements to be fulfilled by hedge fund advisors. A compliance department ensures that the employees are abiding by these rules set in place by the SEC, with the Chief Compliance Officer heading the task.
Hedge funds have a few options. They … Continue Reading

Market conditions have never been better for setting up a forex fund. The number of forex funds and corresponding investors has grown as a result of expanding customer markets. Therefore, traders interested in starting a forex fund (or managing customer accounts) should familiarize themselves with the legal landscape as they consider earning a living in … Continue Reading

By Hannah M. Terhune, Esquire 2008©, hterhune@capitalmanagementservicesgroup.com
Capital Management Services Group
Many countries are competing against each other to provide the best playing field from a legal standpoint for private investment (hedge) funds. For a new, low budget offshore fund, Anguilla or the British Virgin Islands and not the Cayman Islands may well be the best choice. … Continue Reading

Hedge funds are limited to a specific group of sophisticated investors mainly because they are thought to have more experience with markets and investing. However, hedge funds aren’t without risk. While you can’t control market conditions, you can control who you choose to handle your money. Weeding out the bad apples can … Continue Reading

Hedge funds enjoy the unique freedom of investing in anything and everything, making them much more diverse than your average mutual fund. Recently, managers have been adding real estate to that list of nontraditional investments. There are estimated to be about 40 real estate hedge funds in existence today.
Not to be confused with … Continue Reading

Amaranth is a name synonymous with disaster. Branded as the biggest hedge fund collapse in history, Amaranth lost $6 billion of investor’s money in one week alone.
So what was the culprit behind the fund’s demise? Surprisingly, it all boiled down to one bad bet. The funds we have seen collapsing lately due … Continue Reading

With all of the various hedge fund strategies that managers employ, the global macro strategy is one of the broadest yet most detailed approaches used to garner sizable returns.
The global macro manager usually uses leverage to make bets on price movements in any market of the world, hence the term “global.”  The term “macro” refers to the … Continue Reading

After a much publicized debate on their troubled hedge funds, Drake Management has decided to shut down its $2.5 billion Global Opportunities Fund (summer of 2008).
Drake had suspended redemptions in December of 2007, after the fund lost 25% of its value and investors rushed to withdraw money. Investors were denied the action of “liquidating … Continue Reading

The term “hedge fund” was originally coined due the fact that managers would try to hedge the funds against risk in the market by taking both long and short positions. However, risk is almost impossible to avoid in today’s volatile economy, though hedge fund managers do try to use various risk control tactics.
There are … Continue Reading

When trying to maximize absolute returns, the importance of assessing and mitigating risk shouldn’t be underestimated. Some memorable examples like LTCM and Tiger Fund not only show how heavy losses can be for some participants of the hedge fund industry, but also reinforce the perception that a good record of high absolute returns can mean … Continue Reading

When most people think of Bear Stearns, they think of its recent collapse and the resulting purchase by JPMorgan Chase. However, the demise of Bear Stearns can really be traced back to two failed hedge funds during the summer of 2007 which created a domino effect on the entirety of the company. Let’s … Continue Reading

According to Wikipedia, a venture capital fund is a pooled investment vehicle (often in the form of a limited partnership) that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. Venture capital can also include managerial and technical expertise. Most … Continue Reading

The coveted list is here! Forbes magazine has named the World’s Richest, with 1,125 billionaires making the list… the most ever. Warren Buffet took the title of World’s Richest Man, with a fortune of $62 billion. Bill Gates was dethroned for the first time in 13 years, with assets equaling $58 billion.Not surprisingly, hedge fund … Continue Reading

By JAMES R. HEDGES, IV, PARTNER, AND CHARLOTTE LUER, PARTNER, LJH FINANCIAL MARKETING STRATEGIES, AND LUCINDA O. MCCONATHY, PARTNER, AND PATRICIA C. O’PREY, PARTNER, RICHARDS KIBBE & ORBE LLP
Marketing a hedge fund involves a myriad of considerations, including compliance not only with the regulatory requirements and restrictions of the jurisdiction in which the hedge fund … Continue Reading

In 1949, Alfred Winslow Jones devised and implemented an investment strategy that would forever brand him as “the father of the hedge fund industry.” While working for Fortune Magazine and investigating financial strategies, Jones decided to launch his own fund and raised a total of $100,000, $40,000 of which was his own money.
Jones employed … Continue Reading

There are estimated to be over 10,000 hedge funds in existence today. Because they are not regulated like mutual funds and other investments, information on these funds may be a lot harder to find. Another reason for the scarcity of hedge fund information lies in the fact that only accredited investors, qualified clients, … Continue Reading

While there is no specific formula for how hedge funds work since different hedge funds employ a multitude of different strategies, there are some common characteristics that are present in most hedge funds. All hedge funds start with a hedge fund manager.
This manager brings a specific strategy or investment philosophy to the table. … Continue Reading

Asset-based lending is a strategy employed by some hedge funds that has been gaining popularity in recent years. Asset-based lending is where a company (the hedge fund) loans another company a set amount of money, and that loan is backed by collateral (an asset).
Let’s say a builder is in the process of constructing a … Continue Reading

A hurdle rate is the minimum return necessary for a fund manager to start collecting incentive fees. The hurdle is usually tied to a benchmark rate such as Libor (London Interbank Offered Rate) or the one-year Treasury bill rate plus a spread.
Hedge funds which specify a soft hurdle rate charge a performance fee based on … Continue Reading

With regards to hedge fund investing, an accredited investor is not to be confused with a “qualified client.” Qualified Clients are the most attractive investors for hedge fund managers. They must meet one of the following criteria:

A natural person who or a company that immediately after entering into the contract has at least $ 750,000 … Continue Reading

Due to the risky nature of hedge funds, the Securities and Exchange Commission requires that investors meet certain minimum requirements. An “accredited investor” must meet one of the following prerequisites as defined by the SEC:

a bank, insurance company, registered investment company, business development company, or small business investment company

an employee benefit plan, within … Continue Reading

There has been a half dozen articles in the last year (2008) about private hedge fund platforms being setup or launched by firms such as the Man Group. There are really two types of hedge fund platforms being discussed. One allows hedge funds to trade almost any type of security through one portal and the … Continue Reading

The hedge fund industry is intensively competitive. Depending on who you ask or who you cite there are now between 10,000 and 15,000 hedge funds now in the industry. This rivalry comes to a head while hedge funds compete for large investments by institutional investors. Institutional investors spend months analyzing the investment processes and information/research … Continue Reading

New hedge funds are launched daily, which is constantly increasing the importance of determining which hedge funds are appropriate for you or your firm to invest in becomes increasingly important. Every person or company is going to have different investment horizons, risk tolerances, strategy preferences, etc. so it is usually more valuable to know the … Continue Reading

In 1859, Charles Darwin introduced his theory on “On the origin of species” through this now famous preamble: As many more individuals of each species are born than can possibly survive; and as, consequently, there is a frequently recurring struggle for existence, it follows that any being, if it vary however slightly in any manner … Continue Reading

A Fund of Funds, by definition, is a fund that invests in other hedge funds, rather than in individual securities.  Any fund that pools capital together, while utilizing two or … Continue Reading

A hedge fund manager and/or any person acting on its behalf may not solicit an investment into a hedge fund through any type of “general solicitation” or general advertisement” … Continue Reading

Aggressive Growth:
Invests in equities expected to experience acceleration in growth of earnings per share. Generally high P/E ratios, low or no dividends; often smaller and micro cap stocks which are expected to experience rapid growth. … Continue Reading

Risk Arbitrage
Risk arbitrage hedge fund strategies usually involve purchasing stocks of companies that are likely takeover targets, while assuming short positions in the would-be acquiring companies. Risk arbitrage hedge fund managers can employ an event-driven investment strategy or merger arbitrage investment strategy, seeking situations such as hostile takeovers, mergers and leveraged buyouts. Such funds typically … Continue Reading

Family offices are exclusive wealth management firms which primarily only accept clients with at least $10-$25M in assets.  Although family offices typically manage finances for a smaller pool of clients, they are able to provide services in a wide variety of areas such as comprehensive tax and estate planning, charitable giving, foundations, budgeting, and traditional … Continue Reading

In the hedge fund industry you have one name and one reputation. If you ruin that, you could have influential people in the industry refusing to do business with you for 15-20 years after their initial opinion is formed. In such a competitive, close vested industry where large profits can be made, the temptation … Continue Reading

There are a lot of aspects about the hedge fund industry that would be hard or nearly impossible to learn by reading mainstream media sources on the subject. To help answer the question about who hedge fund managers are here is a list of what is not true.
Top 10 Hedge Fund Myths

Most hedge fund managers … Continue Reading

Anyone who has the ability to successfully navigate the many channels of capital within the hedge fund industry is worth their weight in gold (and that’s rising every day). There are two major components of marketing and selling a hedge fund which each take constant attention and refining.

Understand the DNA of the many distinct distribution … Continue Reading

You’ve done your research. You’ve studied the market relentlessly. You feel you have a strategy devised that will make your investors and yourself a lot of money. In today’s high-tech industry, it is easier than ever to start a hedge fund. Most of the consulting work can now be done via the internet or the … Continue Reading

Hedge fund managers use a variety of statistics to inform investors of the fund’s progress, as well as to lure new investors by showcasing attractive returns. Graphs, numbers and charts are all used in the marketing process and will appear on the hedge fund’s website for all accredited investors to see.
Here are just a few … Continue Reading

An incubated fund (also called a limited distribution fund) is a hedge fund that is offered privately to a very select group of individuals, usually family members or employees of the fund. This is so the fund can stay small and unregulated while testing different investment strategies. If the fund does well, it may then … Continue Reading

While both investment vehicles try to maximize gains and minimize risk for their clients, there are some significant differences between hedge funds and mutual funds. Mainly, mutual funds are limited to stocks, money market accounts, and bonds, though some exceptions can be made. This is why the market has such an impact on … Continue Reading

Hedge funds structured under foreign law, or located outside the U.S. are designated as “offshore hedge funds.”  Managers who desire to start a hedge fund offshore can enjoy several advantages over their domestic contemporaries. One advantage is that the fund and its investors are not subject to United States taxation. Another advantage is that since … Continue Reading

When analyzing hedge fund performance, there are many factors to consider. Hedge fund managers classify their returns several different ways and it is important to consider all of these before ascertaining a ‘real’ number.
One distinction that is important to remember when interpreting hedge fund performance is whether the returns are net of fees, or are … Continue Reading

Hedge Fund Manager Capital Introduction
A hedge fund manager and/or any person acting on its behalf may not solicit an investment into a hedge fund through any type of “general solicitation” or general advertisement” under Section (c) of Regulation D.
As a result, an increasing number of hedge fund managers rely upon hedge fund advisory services … Continue Reading

Hedge funds normally do not register with the SEC. Hedge Funds are designed as partnerships, with the general partner typically being the hedge fund’s manager. The hedge fund manager usually makes investment decisions, and has a portion of his/her wealth within the fund. Under the Investment Company Act of 1940, there are two exemptions in … Continue Reading

What is the best way to quantify an investment’s risk? The answer is still open to debate, and the Sharpe and Sortino Ratios reflect two separate camps of thought.
One of the most commonly used measurements of risk is variance, the dispersion of an investment’s returns from their mean. In the calculation of this value, no … Continue Reading

Internet websites have to be careful with respect to general solicitations and advertising, and thus must limit the content of the website in addition to the people who have access to the site. Hedge … Continue Reading

A hedge fund is a private investment fund open only to sophisticated investors. Depending on the type of the fund, the investor needs to fulfill the requirement of “accredited investor” or “qualified client.” In most states, hedge funds are not required to register with the Securities and Exchange Commission and are therefore often … Continue Reading