Educational articles

Event-driven investing is an investing strategy that seeks to exploit pricing inefficiencies that may occur before or after a corporate event, such as a bankruptcy, merger, acquisition or spinoff.…

Too many people who are interested in the financial industry think that the only hedge fund positions that are available are the 100 hour work week hedge fund analyst positions that grind you down and make you a subservient henchmen to the market. While there are lots of those positions to go around, there are also many other hedge fund positions that are the complete opposite of that and actually offer an enjoyable experience. Since each individual hedge fund is set up in its own way, it is difficult to generalize about the specific hedge fund positions that are available, but the three that most hedge funds employ are hedge fund managers, hedge fund administrators and hedge fund analysts.…

If you are looking for an investment alternative to the US stock market (compound annual return of -0.18% since January 2000) and already have quite a bit of money to invest, you may want to consider hedge funds. Mutual funds offer returns that are pretty much inline with the overall market averages, but hedge funds offer something on a whole different level. Hedge funds are a lot more aggressive and are allowed to take certain liberties that mutual funds or other managed funds are not allowed to take. Because of this, compound annual returns for successful hedge funds can be significantly greater.…

If you have been watching the news lately, you will have no doubt heard about some of the so-called "fat-cat" bankers of Wall Street who take home hedge fund salaries that make a small African countries GDP look like pocket change. But, is the hedge fund business really that lucrative? Are hedge fund salaries really that high? Should you drop out of art school and start studying quant analysis as soon as possible? While there are many great opportunities in the financial industry, it is not all it's cracked up to be.…

A successful hedge fund operation has many elements which all intermingle to form an optimal wealth accumulation and growth mechanism. When people see portrayals of hedge funds on TV and in the movies, all they really see are the guys wearing suspenders, imitating Gordon Gekko and lighting cigars with $100 bills in their spare time. But, there is a whole other side to the business, and that is hedge fund admin.…

Are you an avid stock market investor? Do you love the thrill of investing money in a certain stock, bond, or other financial derivative and watch its value skyrocket? Do you want to make more money than you ever thought possible? If so, starting a hedge fund is the perfect opportunity to change your life forever.…

It's that time of year when weary Wall Street traders take stock of exactly how much they're really valued by their banks. And a time also to cast their eyes towards their hedge fund colleagues, muttering darkly about the grass being greener on the other side. With January bonuses now having been bagged, it's a good talking point to see how they measure up to what's available on the hedge-side of the investment industry.…

A hedge fund is an alternative investment vehicle available only to sophisticated investors, such as institutions and individuals with significant assets.…

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by Dermot S. L. Butler The problem with writing about a topic such as starting up a hedge fund is that there are so many questions that have to be asked - for example, where do you want the fund to be established. The answer to these questions usually begs another question, so I am just warning you that this is going to be a long and, perhaps, convoluted paper, and indeed it will probably be spread over 2 months. This month will be more of a descriptive and discussion paper - next month will be more procedure and checklist orientated.…

“Managed futures” refers to an asset class offered by professional money managers who are known as “commodity trading advisors” (CTAs). CTAs are required to register with the U.S. government's Commodity Futures Trading Commission (CFTC) through the “National Futures Association” (NFA), before they can offer themselves to the public as money managers. Commodity Trading Advisors are also required to go through an FBI deep background check, and provide comprehensive disclosure documents, which are required to be updated every nine months and reviewed by the NFA before investment services can be offered. “Managed futures” is arguably the first and oldest hedge fund style, having been in existence for over 30 years.…

by Jennifer Gorton, Forex Traders…

Relative-value arbitrage is an investment strategy that seeks to take advantage of price differentials between related financial instruments, such as stocks and bonds, by simultaneously buying and selling the different securities—thereby allowing investors to potentially profit from the “relative value” of the two securities.…

Merger arbitrage is an investment strategy that simultaneously buys and sells the stocks of two merging companies.…

The long-bias hedge fund strategy essentially serves as an investment halfway house in between a market-neutral fund and a long-only fund. Rather than putting on positions that cancel out as found in a market neutral fund, or having substantial long exposure as in a long-only fund, a long-bias fund maintains a differing ratio of long positions (compared to short positions) that usually exceeds 40%. With this definition in mind, a hedge fund with a long/short equity strategy could transition into a long-bias hedge fund, and vice versa, depending on how its assets were allocated. It should also be noted that long-bias hedge funds emerged during the 1990s during the bull market that concomitantly saw a marked decrease in the number of short-only hedge funds. The long-bias investment model became a key investment strategy to benefit from a rising market while still affording flexibility to short certain stocks or segments in the market.…

Fixed-income arbitrage is an investment strategy that exploits pricing differentials between fixed-income securities.…

An equity long-short strategy is an investing strategy, used primarily by hedge funds, that involves taking long positions in stocks that are expected to increase in value and short positions in stocks that are expected to decrease in value.…

Distressed securities may be an attractive investment option for sophisticated investors who are looking for a bargain and are willing to accept some risk.…

Convertible arbitrage is a type of equity long-short investing strategy often used by hedge funds.…

Hedge fund strategies are the backbone of return generation for the hedge fund community. One of the most profitable are options strategies which can generate healthy and stable returns. Options strategies range from complex volatility strategies to a simple covered call approach.…

Market-neutral hedge funds typically employ a number of different investment strategies (e.g. long and shorts) that individual hedge funds may specialize in. Although some investors consider market-neutral strategies to be similar (or even the same) as a long/short strategy, this article will distinguish between the two by focusing on key characteristics related to market-neutral strategies. At the core, market-neutral strategies focus on making concentrated bets, usually based on a perceived pricing asymmetry, while limiting general market exposure through a combination of long and short positions. The ultimate goal is to achieve a beta as close to zero as possible to protect against systematic risk. This strategy differs in kind from most long/short funds that are essentially seeking long or short exposure in the market through a series of trades.…

Hedge fund strategies are the driving force behind a hedge fund manager's ability to generate returns for his investors. One of the most prolific strategies is the global macro strategy, which focuses on investing in instruments whose prices fluctuate based on the changes in economic policies, along with the flow of capital around the globe.…

While hedge funds implement a number of equity-based investment strategies, the long/short equity strategy has proved to be one of the most durable over the past twenty years. Indeed, the investment strategy gained steam in the mid-1990s on the back of a bull equity market; although assets allocated to the strategy declined after the tech bubble burst in 2000, it has remained viable due to the flexibility it affords managers to reallocate assets in volatile markets.…

A fund of hedge funds is an investment vehicle whose portfolio consists of shares in a number of hedge funds.…

An emerging market hedge fund is a hedge fund that specializes its investments in the securities of emerging market countries.…

There are a number of advantages to a long-only hedge fund. Primarily, there is more room to calibrate the right investment position and greater scalability in those investments. While hedge funds shorting equities may not only find it difficult to get in a certain position but also to acquire enough shares to make the position profitable, there is less concern in maintaining a long position that can be gradually increased over time with minimal leverage. Long-only hedge funds can target certain sectors, for example small cap manufacturers with exposure to emerging markets, while hedging broader exposure to market risk. This is one key difference between most long-only hedge funds and traditional long-only funds: hedge funds do not usually invest or benchmark to a market index (except maybe as a hedge), they attempt to find specific areas of investment where alpha can be generated.…

Of all the investment strategies currently employed by hedge funds, none provides potential for tremendous gain (or loss) more than shorting. To be accurate, a majority of hedge funds use shorts as part of their overall strategy; however, there are three different types of hedge funds where shorts play a major role: 1) short-only hedge funds; 2) short-bias hedge funds; 3) long-short hedge funds. This article will deal with short-only and short-bias hedge funds in order to understand what shorting can add to a hedge fund's arsenal. It should also be noted that with greater innovation in the financial industry, a wider array of financial instruments has opened up new opportunities for short investors. Whereas short investors traditionally had to place positions through buying stock on margin, hedge funds can now place sophisticated shorts against equities and equities indices through derivatives (e.g. options).…

by Eric C. Hage…

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