History

The origin of the first hedge fund is uncertain. During the US bull market of the 1920s, Sociologist, author, and financial journalist Alfred W. Jones is credited with coining
the phrase "hedged fund", in contrast to prior nomenclatures, but is often erroneously credited with creating the first hedge fund structure in 1949.[11] To neutralize the effect of overall market movement, Jones balanced his portfolio by buying assets whose price he expected to increase, and selling short assets whose price he expected to decrease. Jones referred to his fund as being "hedged" to describe how the fund managed risk exposure from overall market movement.[12] This type of portfolio became known as a hedge fund.[13] Jones was the first money manager to combine a hedged investment strategy using leverage and shared risk, with fees based on performance. A 1966 Fortune magazine article reported that

Jones fund had outperformed the best mutual funds despite his 20% performance fee.[14] By 1968 there were almost 200 hedge funds, and the first Fund of
funds that utilized hedge funds was created in 1969 in Geneva. Many of the early funds ceased trading during the Recession of 1969-70 and the 1973-1974 stock market crash due to heavy losses. In the 1970s hedge funds typically specialized in a single strategy, and most fund managers followed the long/short equity model. Hedge funds lost popularity during the downturn of the 1970s but received renewed attention in the late 1980s, following the success of several funds profiled in the media.[14] During the 1990s the number of hedge funds increased significantly, with investments provided by the new wealth that was during the 1990s stock market rise. During the first decade of the new century, hedge funds regained popularity worldwide and in 2008, the worldwide industry held $1.93 trillion in assets under management.[16][17] However the 2008 credit crunch was hard on hedge funds and they declined in value and hampered "liquidity in some markets" causing some hedge funds to restrict investor withdrawals.[18] Hedge fund managers typically charge their funds both a management fee and a performance fee. Management fees are calculated as a percentage of the fund's net asset value and typically range from 1% to 4% per annum, with 2% being standard.[24
The Performance fee is typically 20% of the fund's profits during any year, though they range between 10% and 50%

Hedge fund risk

Managers of hedge funds use particular trading strategies and instruments with the specific aim of reducing market risks to produce risk-adjusted returns, which are consistent with investors' desired level of risk.[54] Hedge funds ideally produce returns relatively uncorrelated with market indices.[55] While "hedging" can be a way of reducing the risk of an investment, hedge funds, like all other investment types, are not immune to risk. According to a report by the Hennessee Group, hedge funds were approximately one-third less volatile than the S&P 500 between 1993 and 2010.[56]

Hedge fund structure

A hedge fund itself has no employees and no assets other than its investments. The portfolio is managed by the investment manager, a separate entity which is the actual business and has employees. As well as the investment manager, the functions of a hedge fund are delegated to a number of other service providers. The most common service providers are: Prime broker prime brokerage services include lending money, acting as counterparty to derivative contracts, lending securities for the purpose of short selling, trade execution, clearing and settlement. Many prime brokers also provide custody services. Prime brokers are typically parts of large investment banks. Administrator the administrator typically deals with the issue of shares, and performs related back office functions. In some funds, particularly in the US, some of these functions are performed by the investment manager, a practice that gives rise to a potential conflict of interest inherent in having the investment manager both determine the NAV and benefit from its increase through performance fees. Outside of the US, regulations often require this role to be taken by a third party. Distributor the distributor is responsible for marketing the fund to potential investors. Frequently, this role is taken by the investment manager.
Samena, Swiss bank Reyl plan $250 mln seed fund
by Hedge Funds India on Sat 07 May 2011 10:17 PM IST

Hong Kong's Samena Capital and Swiss boutique private bank and money manager Reyl & Cie SA plan to raise up to $250 million in a seed fund that will invest in hedge funds focusing on Asia, the Middle East and North Africa. The two firms had committed $25 million to start Samena Angel Fund II, said Samena Capital founder and President Shirish Saraf, adding that Reyl would tap private bank clients to help expand the fund they expect to launch by October. The firms announced a joint venture combining Samena Asia Managers, Samena Capital's hedge fund seeding business, with Reyl & Cie on Tuesday. "That's the business we see going forward as a real synergy with REYL," Saraf told Reuters in an interview. more

Soros and Paulson move in opposite directions as gold declines

by Hedge Funds India on Sat 07 May 2011 09:59 PM IST

Two of the world's most successful investors have gone head to head over the price of gold, with the man who broke the Bank of England baling out of the precious metal and the man who made a fortune by betting against the American housing market talking it up. At the end of a week when plunging commodity prices fuelled speculation that the boom might be over, it emerged that George Soros who made $1.1bn from betting against the pound in 1992 has sold much of the gold and silver holdings he has built up in the past three years, realising an estimated return of 65% on his investment. By contrast, meanwhile, John Paulson, who made his hedge fund more than $20bn from betting against the US housing market by "shorting" sub-prime mortgages, this week told investors that he still has most of his personal money invested in gold. more

Kaiser, Caldwell acquire stake in BSE

by Hedge Funds India on Sat 05 Jun 2010 05:06 PM IST

Despite Dubai Financial Group calling off its plans to sell stake in the Bombay Stock Exchange (BSE), Torontobased investment broker Thomas Caldwell and philanthropist George Kaiser have managed to acquire shares in

Asias oldest bourse. Over the past few months, Kaiser has acquired over 3 per cent in BSE, while Caldwell has increased his shareholding from 3.8 per cent last year to 4.25 per cent through multiple private deals, exchange officials said. They said the shares had been purchased from brokers, as well as some of the institutional investors in BSE. Along with US hedge fund legend George Soros and private equity firm J C Flowers, Caldwell and Kaiser were in the race to buy Dubai Financial Group LLCs four per cent stake in BSE. Kaiser, through his private equity firm, Argonaut, was the highest bidder and had offered to pay Rs 370 a share. But, looking at the rush, embattled Dubai Financial deferred its stake sale plans in anticipation of higher valuations in the future, said a deal maker. more

Arcstones passage to India: picks up 5% stake in Dhanlaxmi Bank

by Hedge Funds India on Sat 24 Apr 2010 09:37 PM IST

The US-based hedge fund Arcstone Capital LLC has made a passage to India by picking up close to 5% stake in the Kerala-based old generation private sector bank Dhanlaxmi Bank. The fund has mopped up the shares in the bank through its investment vehicle Passage to India Master Fund Ltd. The Denver-based hedge fund has been scouring for value buys in India for the past couple of years. Aster Business Research Pvt Ltd is the sole advisor for the US-hedge fund in shaping its India strategy

Standard & Poor's Brings the S&P 500 to India

by Hedge Funds India on Wed 10 Mar 2010 10:33 PM IST

Standard & Poor's, the world's leading index provider, announced today that it has licensed the National Stock Exchange of India (NSE), the largest stock exchange in India, to create and list Indian Rupee-denominated futures contracts on the S&P 500 (subject to regulatory approvals). The licensing agreement, jointly from S&P and S&P-licensee Chicago Mercantile Exchange to NSE, is part of a landmark cross-listing arrangement announced today by CME Group, the world's leading and most diverse derivatives marketplace, and NSE that covers benchmark indices for U.S. and Indian equities. The Rupee-denominated S&P 500 futures contracts will be made available on NSE via a sublicense from Standard & Poor's. Widely considered the single best gauge of the U.S. equity market since it launch in 1957, the S&P 500 is the world's most followed stock market index with nearly $1 trillion directly indexed and $3.51 trillion benchmarked to it. more

Relative Value Convertible Arbitrage Investing in convertible securities i.e. long convertible and short the common

stock of the same company. Fixed Income Arbitrage Profits from price anomalies between related interest rate securities. e.g interest rate swap, US & non-US govt. bonds, forward yield curve arbitrage, mortgage backed securities arbitrage. Equity Market Neutral To exploit equity market inefficiencies, simultaneously long and short

matched securities portfolios. Merger Arbitrage Simultaneously in long and short positions in both companies involved in a

merger or acquisition. Also known as special situations or event driven. Credit

Distressed Securities

To invest in debt, equity or other instruments of companies in financial distress and general bankruptcy.

High Yield

Investment in low grade fixed income securities of companies that show significant

upside potential. Sometimes managers short bonds where they believe there are high credit risks as compared to market price. Emerging Market Debt Fixed income investing in emerging markets. Mostly long- biased with strategic short positions, sovereign and corporate. Regulation D Investment in micro and small capitalisation companies that are raising money in

private capital markets. Macro Global Macro Long and short positions in any of the world's major capital or derivative markets. Positions are views on overall market direction as influenced by major economic trends or events. Portfolio includes stocks, bonds, currencies, commodities, cash or derivatives. Overall investments are globally both in developed and emerging markets.

Managed Futures

Investment in listed financial and commodity futures markets and currency markets around the world. Managers are usually referred to as CTAs.

Equity Long/Short Equity Hedge Equity oriented investing on both the long and short sides of the market. Objective is not to be market neutral. Dedicated Short Bias To maintain net short as opposed to pure short exposure. Short positions are mainly taken in equities and derivatives. Other Terms Fund of Funds Multi Strategy Invests in other funds Invests in different strategies and changes allocations according to market or economic circumstances.
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