Hedge fund strategies
Hedge fund strategies

Author(s): Katarzyna Perez
Subject(s): Economy, Business Economy / Management, Financial Markets
Published by: Wydawnictwo Uniwersytetu Ekonomicznego w Poznaniu
Keywords: absolute return;bottom-up;double alpha strategy;front running;gate provision;gross market exposure;hedge ratio;high-water mark;hold-over provision;hurdle rate;incentive fee;lock-up period;
Summary/Abstract: Hedge funds are known for being one of the most efficient but risky financial innovations in the world. They belong to the group of alternative investments. Contrary to traditional investment funds they are offered only to selected investors who are characterized by high level of assets and sufficient degree of sophistication allowing them to invest capital in investments not protected by governmental institutions of financial market supervision. This chapter concentrates on characteristics of hedge fund attributes and strategies, especially those that use derivatives on a daily basis. It clarifies why a “hedge fund” is in fact a misname and which hedge fund attributes are the best to define it. It also presents and describes the types of hedge funds strategies which represent directional or non-directional approach to active management. The terms like absolute return, onshore or offshore funds, bottom-up or top down, net long or net short and many others are explained and illustrated with figures and examples. The chapter also presents a few examples of how derivatives are used in those strategies. The know-how on that subject is strictly confidential therefore the examples are hypothetical and not very detailed. However, they bring this issue closer and introduce the reader to how hedge fund managers earn absolute returns.

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