Hedge Funds
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Source : http://www.thehfa.org
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last activity : 07 06 2010 20:18:04 +0000
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In the last 15 years or so, there has been a large flow of capital into the hedge-fund world, from $100 billion in the early 1990s to $2 trillion now. But the amount of available investing opportunities hasn’t increased that much and has led to the over-betting phenomenon Bill and I were talking about, or gambler’s ruin. Hedge funds started using a great deal of leverage to increase returns, but it needs a lot of patience and market analysis.
Being a $2 trillion industry and growing every year, with approximately 10,000 hedge funds, there is a need of innovative and active strategies.Some the main focal strategies , i have here mentioned for you:
Aggressive Growth: Generally high P/E ratios, low or no dividends; often smaller and micro cap stocks which are expected to experience rapid growth.
Market Timing: Allocation of assets by managers perspective and outlook of marmket
Market Neutral - Securities Hedging: Maintain equilibrium between long term and short term portfolio investing.
Distressed Securities: Profits from the market’s lack of understanding of the true value of the deeply discounted securities and because the majority of institutional investors cannot own below investment grade securities.
Emerging Markets: Invest in markets with volatile growth and higher inflation rate
Special Situations: Invests in event-driven situations such as mergers, hostile takeovers, reorganizations, or leveraged buy outs.
Market Neutral - Arbitrage: Attempts to hedge out most market risk by taking offsetting positions, often in different securities of the same issuer.
Short Selling: Sells securities short in anticipation of being able to rebuy them at a future date at a lower price due to the manager’s assessment of the over valuation of the securities.
There are lots off misconceptions related to hedge funds,the popular misconception is that all hedge funds are volatile -- that they all use global macro strategies and place large directional bets on stocks, currencies, bonds, commodities, and gold, while using lots of leverage. In reality, less than 5% of hedge funds are global macro funds. Most hedge funds use derivatives only for hedging or don’t use derivatives at all, and many use no leverage.
So you need to be well aware of the hedging strategies and the financial regulatory policies.
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