Structure and Management of Hedge Funds

by admin on January 26, 2014

There are different types of investment instruments such as event-driven, market-neutral, and long-short funds.  Hedge funds often outperform mutual funds because they use advanced strategies. Some funds capitalize on bond prices while others focus on equity index options. The goal is to deliver stable returns and reduce manager risk. They use different techniques such as equity trading and systemic trading. Event-driven funds, for example, aim to take advantage of political turmoil, natural disasters, mergers, and other events . When it comes to rules, the hedge fund regulations vary by country. There are multi-manager, multi-market, and multi-strategy funds. Different funds utilize various techniques, including statistical and convertible arbitrage. There are funds that focus on security repurchases, share buy-backs, and spin-offs. Managers take different factors into account, including country and location, market capitalization, industry, and others. Some strategies do not fit neatly in any category, for example, risk parity and fund of hedge funds.

money_graphThere are funds that specialize in hostile takeovers, liquidations, and mergers and acquisitions. Some focus on bankruptcies, restructurings, and risk arbitrage. Risk and merger arbitrage are other options that include hostile takeovers, liquidations, and mergers. Because of the techniques used, including macro and opportunistic, hedge funds are not the best choice for inexperienced and conservative investors. Administrators look at different factors, including market and economic outlook and the state of the economy. Some investment vehicles earn profits in the form of principal appreciation. Funds that focus on emerging markets aim to increase their long-term returns. The economies of Turkey, South Korea, and Mexico are emerging markets. One option is to use short positions to benefit from falling equity prices. While some funds are flexible, others are highly specific and focus on sectors and areas such as basic materials, energy, and technology. Investors choose from different instruments, depending on their risk profile. There are complex products as well, which are designed for seasoned investors.

Hedge Fund Regulation Corner

Regulations vary depending on the location, but there are similarities as well. As a rule, investment vehicle comply with state, federal, and national regulations applicable in their respective country, state, and location. Different EU countries impose limits on leverage and various controls. The situation is similar in the U.S. where administrators register with the Securities and Exchange Commission. Hedge fund rules vary in locations.

Structure and Management

Private banks, insurance companies, endowments, and other entities invest in funds administered by professional managers. Mangers are tasked with administration and are offered performance incentives. They use both risky and conservative strategies.

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