Hedge fund strategies
In this article of the series we continue our research into the concept of hedge funds: we will learn about the differences between hedge funds and classic investment funds and asset management strategies.
Другие статьи мастер-класса «Хедж-фонды»:
Distinctive features of hedge funds
In this day and age, acquiring stock hedge fundinvestors rely entirely on portfolio manager integrityAs the working systems of such funds are rather complex and cannot be described in detail in the investment offer. By default, it is clear that the conceptual principles of hedge fund operation provide small risks relative to conventional classic retro funds, but they are may increase substantially in the speculative actions of the asset manager.
Since hedge funds are leveraged, we note such a significant disadvantage of hedge funds is that they impose a restrictions on the disposal of their assets in the fund by their direct investors. The periodicity of such "non-return of funds" can last from a month to several years. This is the so-called "dead period"which is necessary to support the liquidity of the hedge fund.
The next distinguishing feature of hedge funds is. fixed asset management fee managers, which amounts to 1-3% of the asset value, whereas in conventional funds it is no more than 0.5%. In order to increase investor confidence, hedge fund managers organize internal stabilization fund from personal funds, thereby sharing risks with investors.
Classification of asset management strategies
Almost every hedge fund has its own distinctive features in the algorithm of asset management. But in general, all strategic systems are conditionally divided into three main classes:
- event strategies;
- arbitrage strategies;
- directive and tactical strategies.
Algorithm of arbitrage strategy implies that the manager seeks opportunities for temporal, spatial and cross-sector arbitrage. For example, a manager may buy a stock in one market in one form and sell it more expensive in another market in another form. Speculate also on the differences between stock prices and the prices of the bondsconvertible into shares.
Event Strategies resemble arbitrage strategies in their principles. The main difference is that here arbitration is aimed at specific events in the life of companiessuch as resignations of top management, payment of bonuses, mergers and acquisitions, etc. At the moment of a company takeover, a hedge fund buys shares of this company and opens a long position in the shares of the company that has taken over the competitor. This logic is motivated by the fact that the shares of the absorbed company will grow in price, as the absorbing company will offer the shareholders of the weak company a favorable price in return for agreeing to the merger. At the same time, the shares of the company leading the takeover will lose price positions, because in order to make favorable offers to the shareholders of the competing company, it will have to "cut" from its shareholders the interest from the earned profit.
Directive and tactical strategies are usually used by those funds that speculate, as a general rule, in currency and commodity markets. Managers of such funds analyze complex economic and psychological correlations between US Federal Reserve interest rates and prices of precious metals, oil or rates of highly liquid currency instruments. In finding such opposites, they use the following methods derivatives in order to open long positions in one asset and short positions in another.