Investment strategy of hedge funds, Financial Management

Investment Strategy OF HEDGE FUNDS

After the Funds are raised from genuine investors, the next step for Hedge Funds is to invest them as per the investment objectives and strategy. Hedge Funds are generally classified according to the type of investment strategy they follow (see table 2). It is important to understand the basis of underlying strategies from various Hedge Funds strategies (see Table 3) because all Hedge Funds are not similar in investment approach. Returns, volatility and risk vary enormously among different Hedge Fund strategies; and how the Hedge Funds are able to diversify investor portfolio and enhance returns are the areas that needs to be verified. Some strategies that are not correlated to equity markets are able to deliver consistent returns with extremely low risk of loss, while others may be more volatile with high returns estimation. Some industry veterans try to categorize Hedge Funds based on their study of appropriate models into various types and formats. Some of the classifications are:

Fung and Hsieh (1997) classify a Hedge Fund's strategy according to both "style" and "location". Here, "style" refers to the type of positions the Fund manager takes, such as going long and short, betting on a particular type of corporate event, or maintaining market-neutrality. "Location" refers to the asset class that the Hedge Fund invests in, such as fixed income, equity, or currencies.

Vikas Agarwal and Narayan Y. Naik classify them into directional and non-directional strategies. Directional strategies refer to those that are dependent on market movements and non-directional strategies that are independent of market movement and profit from either mispricing or effect on pricing of assets due to an expected related event.

Hedge Funds are often segmented according to the asset class that they invest in. There are Hedge Funds trading solely in equities; others specialize in fixed income, sectors, commodities or currencies. They are also grouped on the basis of geographical location of the assets they trade in. For example, some Funds may be focused on European assets while others may be limited to emerging markets and a Hedge Fund that invests in any country is labeled as a global Fund.

 

Posted Date: 9/11/2012 2:14:20 AM | Location : United States







Related Discussions:- Investment strategy of hedge funds, Assignment Help, Ask Question on Investment strategy of hedge funds, Get Answer, Expert's Help, Investment strategy of hedge funds Discussions

Write discussion on Investment strategy of hedge funds
Your posts are moderated
Related Questions
Question 1: (a) Highlight the main benefits which Mauritius can reap from a strategy of financial globalization. (b) What are the problems with the internationalization of

Brown has been in business for some years and has kept her drawings slightly below the level of profits each year. You are her accountant, and she has passed you the following list

State what is Average cost Average cost represents weighted average of the costs of each source of fundsemployed by enterprise, weights being the relative share of each source

If normal operating revenues are inadequate to repay the debt, liquidation of collateral may be necessary. Corporate bonds can be either secured or unsecured by c

Name two patterns of cash flows for a share of common stock. How does the market define the value of the most common cash flow pattern for common stock? Cash flows for a share

Clearing and Settlement The Treasury Bills are available in physical form if an investor desires so. The market is mostly dominated by institutional players who have a facility

Q. Explain Dividend Policy Decision? Dividend Policy Decision: - The financial management has to make a decision as to which portion of the profits is to be distributed as divi

Convertible bonds are the debt instruments issued which can be converted after a pre-specified date for a pre-specified number of securities (generally equity stock). I

Q. Estimation of Working Capital? A firm must estimate in advance as to how much net working capital will be required for the smooth operations of the business. Only then, it c

what is the value of beta for this fund ? If the benchmark index for this mutual fund increased by 11.00% during the period covered by beta measure, what was the rate of return for