Valuation and exit - hedge fund, Financial Management

Valuation and Exit

Valuation: The Net Asset Value is used as a base for ascertaining the prices applicable to investor subscriptions and redemptions. Fund administrator performs the NAV valuation. NAV calculations should include accrued interest, dividends, and other receivables of the Hedge Fund, as well as accrued expenses (including fees) and other payables. Most of the Hedge Funds are issued with close-ended features (vice-versa in case of FoFs and offshore funds) and valuation of NAV is the major concern voiced by the industry analysts and fund managers about their portfolio of holdings. The NAV valuations are prone to manipulation (due to lack of transparency) and underestimation due to improper selection of benchmarks.

Generally, investment strategy for valuation is divided into two categories (see Table 5): ‘Easy-to-value' and ‘"Hard-to-value' strategy. Easy-to-value strategies constitute 80 percent of overall total asset management and rest 20 percent accompanied with Hard-to-value strategies. The differentiation arises, as it is difficult to estimate the value of investments that are based on various factors and long-term nature of investment.

Exit: Hedge Funds are issued with a lock-up period usually of three years to arrest outflow of funds. As soon as the funds lock-up period comes to an end, investors have the option to exit from the funds by selling either to fund houses (in case of open-ended schemes) and to other eligible investors (in case of close-ended schemes). The redemption or exit price is determined on the basis of the NAV valuation, which the Hedge Fund issues in its monthly, quarterly, or annual reports. Exiting from the fund by offering to the third party might involve the fund manager's intervention on when he feels the transfer of shares can have negative impact on future Fund operations.

 

Posted Date: 9/11/2012 2:23:24 AM | Location : United States







Related Discussions:- Valuation and exit - hedge fund, Assignment Help, Ask Question on Valuation and exit - hedge fund, Get Answer, Expert's Help, Valuation and exit - hedge fund Discussions

Write discussion on Valuation and exit - hedge fund
Your posts are moderated
Related Questions
How would you judge the potential profit of Bajaj Electronics on the first year of sales to booth Plastics and give your views to increase the profit?

Leveraging can be described as an investing principle where funds are borrowed to invest in a part of the securities. The manager hopes to earn a return that is g

What is GATT, and what is its goal? GATT is the General Agreement on Tariffs and Trade it is a agreement that seeks to decrease trade barriers among participant nations.

Explain the factors affecting the choice of a minimum cash balance amount. The smallest cash balance amount is determined by how easy it is to raise funds when needed, how expe

Traded investments The term traded investment refers to the buy of an investment asset which is traded in the financial markets. Instance includes government and ordinary share

Scenario analysis Your firm, Agrico Products, is considering a tractor that would have a cost of $35,000, would increase pretax operating cash flows before taking account of deprec

• Prepare a Trend Analysis for the Balance Sheet, Income Statement and Cash Flow Statement • This should include about 12 accounts in the Balance Sheet and about 10 Income Statemen

explain the assumptions underlying Walter''s dividend model?

The following is the existing capital structure of Company XYZ Ltd. Ordinary shares at Shs.10 par 1,000,000 Retained 800,000 12% preference shares Shs.10 par 400,000 16% loan Shs.1

identify and explain the key stages in the capital investment decision-making process and the role of investment appraisal in this processs..