Abstract This paper looks at the history of pooled monetary funds. It discusses the difficulties experienced throughout recent history to get this concept publicly accepted but how, now, this is a very popular institution. It examines one example of this concept - Hedgefunds, and the difficulties faced in marketing this concept in Europe.
From the paper:
"The idea of pooling money together for the purpose of investing started in Europe in the mid-1800s. The first pooled fund in the United States was created in 1893 for the faculty and staff of Harvard University. On March 21, 1924, the first mutual fund was started in the United States. It was called the Massachusetts Investor's Trust. It grew from $50,000 in assets in 1924 to $392,000 one year later with approximately 200 shareholders. Today there are over 10000 in mutual funds in the US today totaling around $7 trillion dollars with approximately 83 million investors, according to Dustin Woodard at About.com."
Abstract This paper outlines the main characteristics of hedgefunds and looks at how these differ from traditional investment funds. There are over a dozen investment techniques used in hedgefund industry in order to make returns. The paper describes four of them: opportunistic, market neutral - securities hedging, global macro and value investment style. The great size of the assets under management of the hedgefund suggests that they are important clients of investment banks and can play a significant role in the financial markets. The paper also takes a closer look at how investment banks work with hedgefunds and what impact the hedgefunds have on the overall stability of the financial markets.
Outline:
Introduction
An Overview of HedgeFunds, Comparison to Traditional Funds and Their Importance as Clients of Investment Banks
Recent Expansion of HedgeFunds HedgeFunds and Financial Stability
Some Risks Associated With HedgeFunds Regulation of HedgeFunds HedgeFunds' Investment Styles
Conclusion
From the Paper "The definition of a hedge fund is an investment institution, which actively manages its portfolio using a large number of strategies and leverage in order to produce high returns, which are measured in absolute terms and/or over a specified benchmark, such as FTSE100 in the UK or the DOW30 in the US. Hedge funds are similar to the traditional investment funds in that they are both pooled and professionally managed, however, there is a number of differences. Unlike traditional funds HFs are practically unregulated and have the flexibility in their trading and investment strategies, e.g. go short when markets are bearish or when a manager thinks that an asset is overpriced and is due a correction (source: Investopedia)."
Abstract This paper discusses the securities investments market, explaining the two types of investments; so-called traditional and non-traditional. The pape provides a comprehensive explanation of the industry with charts and diagrams to further illustrate the points.
Outline:
Introduction
HedgeFunds Definitions
Structure
Transparency
Fees
Flexibility
HedgeFund Industry
Historical development
Investors
Benefits and Risks
Benefits
Risks
HedgeFund Styles
Market Neutral Group
Equity Market Neutral
Event Driven
Market Neutral Arbitrage
Long/ Short Equity Group
Aggressive Growth
Opportunistic
Short Selling
Value
Directional Strategies Group
Futures
Macro
Market Timing
Specialty Strategies Group
Emerging Markets Income
Multi-Strategy
Fund of Funds Evaluation
Conclusion
Appendix
References
From the Paper "There are two types of hedge funds, namely US and offshore. US-based hedge funds are mostly structured as Limited Partnerships and must register at the Securities and Exchange Commission (SEC). Offshore hedge funds have their headquarters outside the US and are typically located in tax heavens like the Bahamas or Ireland. (Appendix 1) They are structured as corporations , are less regulated and can therefore have more than only 500 investors.
"Transparency: The whole hedge fund industry is a mystery to outsiders. Only few people know much about hedge funds and those insiders work at them and never talk about it. Hedge fund managers are generally not forced to make performance information, asset allocations or earnings public. Investors support this fact while strategies can't be copied by others. They are satisfied with the available data and analyses about the fund and its holdings to decide whether to invest or not."
Abstract The paper explains how hedgefunds work, how they can have substantial sway over markets and why many pension funds invested heavily in hedgefunds. The paper then discusses how many hedgefunds invested heavily in the sub-prime mortgage market, that led to a volatile situation that devastated the pensions of many middle class workers, crippled mortgage lenders and had a broad effect on the economy. The paper considers the argument that homebuyers and investors are not completely to blame for the worldwide credit crunch but contends that people need to take personal responsibility for their own finances. The paper maintains that by bailing them out, we would only be increasing the likelihood that a bubble will happen again when the next get-rich-quick financial fad pops up.
From the Paper "Hedge funds are private investment funds that charge a performance fee of usually around twenty percent. Many legal rules that apply to other types of funds such as mutual funds do not apply to hedge funds. Instead, hedge fund managers write up contracts that spell out the rules governing each particular fund. This allows hedge fund managers to follow more aggressive investment strategies than is legally possible for normal mutual funds. These funds often hedge their investments against negative developments in equity and other markets because the common goal is to create returns that are not necessarily in line with those of the larger financial markets."
Abstract This paper explains that hedgefunds, large private investment pools that are not limited by the restrictions put on other types of investment vehicles, are allowed to take short positions in securities and to concentrate their investments in a particular firm, industry or sector. The author points out that, in the case of LTCM, the basic idea was hedging: over time, the value of long-dated bonds issued a short time apart would tend to become identical, and by a series of financial transactions (essentially amounting to buying the cheaper 'off-the-run' bond and short-selling the more expensive, but more liquid, 'on-the-run' bond), it would be possible to make a profit as the difference in the value of the bonds narrowed when a new bond came on the run. The paper concludes that there is no way to hedge away all the risk, especially when tough economic times materialize; therefore, a solid capital base must be a requirement in order to weather negative economic conditions, and hedgefunds must be regulated.
Table of Contents
Introduction
Background of LTCM
The Collapse of LTCM
Results of the Collapse of LTCM
The Future of LTCM and HedgeFunds Conclusion
From the Paper "With regard to leverage, the LTCM Fund's balance sheet on August 31, 1998, included over $125 billion in assets. But, even using the more generous January 1, 1998, equity capital figure of $4.8 billion, this level of assets still implied a balance-sheet leverage ratio of more than
25-to-1. The extent of this leverage implied a great deal of risk. The LTCM Fund's exposure to certain market risks was several times greater than that of the trading portfolios typically held by major dealer firms. The LTCM Fund's size and leverage, as well as the trading strategies that it used, made it extraordinary vulnerable to a down turn in financial market conditions."
Abstract The paper explains the concept of hedgefunds and describes their legal structure, fee structure and classification. The paper discusses how, before the regulation of hedgefunds, managers could bypass laws related to insider trading and use practices that would not be tolerable in other investment arenas. The paper looks at the "Goldstein vs. Securities and Exchange Commission" (SEC) case and its outcome that has improved the regulatory framework of the SEC.
Outline:
Introduction: What Is a HedgeFund?
Legal and Fee Structure of HedgeFunds - Platform for Insider Trading
Regulating HedgeFunds
From the Paper "The original concept of a hedge fund is that it offer plays against the market, using short-selling, futures and other derivative products. Hedge funds provide one of the most diversified market activities within investment strategies since it can use a myriad of financial instruments and positions to reduce risk and maximize gains . Hedge funds minimize risk and the volatility of that risk via strategic diversification by selling long or short, buying and selling securities, engaging in opportunities on the futures or bond market. The development of a hedge fund was based on getting an absolute return in all directions. In practice this means that hedge fund managers seek seed freedom to achieve high absolute returns and wish to be rewarded for their performance."
Abstract This paper explains what long-term capital management, or hedgefunds, are and how they operate. It gives the background information of long-term capital management (LTCM) and its distinguishing features. The paper continues with a discussion on the collapse of LTCM, including the causes and consequences. There is also a discussion on the future of LTCMs and hedgefunds and a brief overview of the reforms needed to regulate hedgefunds.
From the Paper "Hedge funds are large unregulated private investment pools for wealthy institutions and investors. Hedge funds are not limited by the restrictions put on other types of investment vehicles with regard to their leverage and the composition of their portfolio. Hedge funds are allowed to take short positions in securities and are also allowed to concentrate their investments in a particular firm, industry or sector. The launch of Long-Term Capital Management (LTCM) represented one of the first hedge funds in operation and, unfortunately, the first fall out. Ultimately, the arrogance of LTCM's management in believing that they could actually hedge away all the risk precipitated the fund's demise."
Abstract This eight page paper examines hedging currency risks. The author notes that in critically discussing the view that the efforts by companies to hedge currency risks are of little value to the owners of such companies, it is evident that there is much support for this view. For example, the writer points out that in a Mercer Management Consulting survey of 111 pension fund managers in North America, Australia, Japan and the UK, 86% of respondents said they consider the impact of hedging currency risks to be nil over the long term.
From the Paper "In critically discussing the view that the efforts by companies to hedge currency risks are of little value to the owners of such companies, it is evident that there is much support for this view. For example, "in a Mercer Management Consulting survey of 111 pension fund managers in North America, Australia, Japan and the UK, 86% of respondents said they consider the impact of hedging currency risks to be nil over the long term". But this view is not universal by any means, for more than sixty-percent of the respondents in this survey believed that hedging currency risks "can have a short-term effect on volatility. Despite this reservation, 79% say they would allow fund managers to carry out hedging operations"."
Abstract This paper discusses the increased responsibilities of the Treasury in financial risk management even as it illumines the workings of the financial market, functions of financial institutions, characteristics of financial products, purposes of commoditization, and the past and future trends of financial markets.
Table of Contents:
Introduction
Risk Management
Financial Markets Institutions and Intermediaries
Commoditization
Mark-to-Market Schemes
From the Paper "Of these financial products, trade in hedge funds is the least popular because of perceptions that these funds are fraught with risks. In fact, China closed its derivatives exchange for hedge funds in 2005 when trade in credit derivatives brought losses to hedge fund holders, after an expected default corrections in the corporate credit markets failed to materialize. As a derivatives instrument, the hedge fund is a financial obligation whose value is derived from an underlying asset, reference and index rates or interest rates, the result of a specific event or the price of an underlying asset such as debt equity or commodities."
Abstract This paper presents an application to the New York University (NYU) Business School. It describes the applicant's background at school and college and discusses why he wants to transfer from his current environment to New York University Leonard N. Stern School of Business and pursue a major in finance, serving a career goal of ultimately becoming a portfolio manager at a hedgefund.
From the Paper "Last but not least, the fact is that ultimately hedge fund management is a diversifying field. As business globalizes in this day and age, opportunities for funding and investment will crop up in more and more remote, exotic, or diverse regions. As wide an understanding of foreign culture and the dynamics of diversity in the business and financial arena as possible will serve the interests of my chosen field, and in turn serve those who will come to rely so heavily on my professional ability and acumen: investors. One might say that in order to maximize the value for my stakeholders, I believe that a transfer to NYU and to the environment that is New York City will ultimately benefit them as well as myself. Simply put. I want to maximize my professional value, and transferring to NYU to continue my vocational training will accomplish just that."
Abstract This paper examines the reasons why the Federal Reserve Open Market Committee at its October 2000 meeting decided to leave the Federal Funds Rate target (and by extension the money supply target) unchanged as well as looking at what might have prompted the Fed Open Market Committee to increase the Federal Funds Rate or Discount Rate as well as what might have prompted them to decrease the Federal Funds Rate or Discount Rate ? and what other actions might have accompanied either an increase or decrease.
From the paper:
"To understand the Fed's decision in October it is necessary to understand how the office functions in general. As the central banking authority of the United States, the Federal Reserve acts as a fiscal agent for the U.S. government; it also serves as custodian of the reserve accounts of commercial banks, makes loans to commercial banks, and is authorized to issue Federal Reserve notes that constitute the entire supply of paper currency of the country. The system comprises the Board of Governors of the Federal Reserve System, the 12 Federal Reserve banks, the Federal Open Market Committee, the Federal Advisory Council, and, a Consumer Advisory Council along with several thousand member banks. The Board of Governors of the Federal Reserve System determines the reserve requirements of the member banks within statutory limits, reviews and determines the discount rates established by the 12 Federal Reserve banks, and reviews the budgets of the reserve banks."
Abstract A paper that looks into the question of 'How money marketfund disintermediated the commercial bank and thrift in the late 1970s. It uses three references.
Abstract In order to determine the value of index investments as an investment strategy, this paper weighs several important considerations. It defines index funds and lists the types of index funds that are available to the investor. It then gives a thorough list and analysis of the major advantages and disadvantages of index investing. The paper then lists the alternatives to index investing and investigates the advantages and disadvantages of these alternatives. The Efficient Market Hypothesis is explained and how this might impact the evaluation of index investing and the alternatives to index investing. It concludes this case study by giving a personal analysis of whether the writer would include index investing in his personal portfolio.
From the Paper "Simply put, an index fund is a mutual fund that attempts to match, with as much accuracy that is possible, the performance in a stock market index. Mutual funds have created S&P500 index funds in an attempt to copy the Standard and Poor (S&P)500 index, by buying all 500 stocks in the same percentage that they are present in the index.
"Interestingly, S&P 500 tracks the performance of large company stocks in the United States, like the Dow Jones Industrial Average. The S&P 500 index tracks the stock prices of 500 big companies, which account for close to 80 percent of the total market value all of the stocks that are traded in the United States. Index funds mirror the returns of a specific index, or a group of securities, that are considered measuring sticks of the behavior of the market as a whole. If the market increases 5% in one year, the index will also increase by close to 5% in the same specific time frame."
Abstract The paper discusses how opportunities for venture funding in China abound and with proper due diligence, good investment opportunities are easily located, because it is such a growing market. The paper explains that the opportunity for foreign venture capital is apparent in China's lack of private funding organizations. The government clearly dominates venture capital funding in China and will do so for the foreseeable future.
Abstract This paper discusses closed-end mutual funds. It looks at why most investors involved with mutual funds opt for open-end funds for investments. It describes the many types of mutual funds and contends that in contrast with an open-end mutual funds, a so-called closed-end mutual fund is not a mutual fund at all.
From the Paper "The pricing of securities in the financial markets is, in theory, based on the function of the efficient markets hypothesis. The efficient markets hypothesis among other things assumes that all investor always act rationally in relation ..."
