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
Describe the sales forecasting process. It is a group effort. Sales and marketing personnel generally offer assessments of demand and the competition. Production personnel genera

a) The combined two-firm concentration ratio of Motorola (approximately 17.5%) and Nokia (35%) is around 52.5% of the market. b) Up to 2 marks for correct definition: Market sha

The Central Bank is an authority responsible for monetary policy of its country. It regulates money supply and credit, issues currency, and manages exchange rate.

Market Efficiency Though there are various markets present in the financial system, the ease with which the transfer of funds take place depends on the level of efficiency pres

You are required to choose a company for analysis. This company should be quoted on one of the principal international exchanges. It may be your own company. You should then do the

Meaning merits nd demerits of modern approch of financial management

Determine the Fields of Finance Academic discipline of financial management may be viewed as made up of five specialized fields. In every field, financial manager is dealing wi

what is financial management?

nestle is an orgnization wether bureacratic approach approperiate for the organizational performance or not?

Contingency Planning:   Once the events are evaluated and categorised, and the levels of risk attaching to them have established.  The organisation should then commence pla