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Handbook of Hedge Funds

Book Description

A comprehensive guide to the burgeoning hedge fund industry

Intended as a comprehensive reference for investors and fund and portfolio managers, Handbook of Hedge Funds combines new material with updated information from Francois-Serge L'habitant's two other successful hedge fund books. This book features up-to-date regulatory and historical information, new case studies and trade examples, detailed analyses of investment strategies, discussions of hedge fund indices and databases, and tips on portfolio construction.

Francois-Serge L'habitant (Geneva, Switzerland) is the Head of Investment Research at Kedge Capital. He is Professor of Finance at the University of Lausanne and at EDHEC Business School, as well as the author of five books, including Hedge Funds: Quantitative Insights (0-470-85667-X) and Hedge Funds: Myths & Limits (0-470-84477-9), both from Wiley.

Table of Contents

  1. Title Page
  2. Copyright Page
  3. Foreword
  4. Chapter 1 - Introduction
  5. Part I - Hedge Fund Overview
    1. Chapter 2 - History Revisited
      1. 2.1 THE VERY EARLY YEARS: THE 1930s
      2. 2.2 THE FORMATIVE YEARS (1949-1968)
      3. 2.3 THE DARK AGES (1969-1974)
      4. 2.4 THE RENAISSANCE (1975-1997)
      5. 2.5 THE ASIAN AND RUSSIAN CRISES (1997-1998)
      6. 2.6 THE EQUITY BUBBLE YEARS
      7. 2.7 HEDGE FUNDS TODAY
      8. 2.8 THE KEY CHARACTERISTICS OF MODERN HEDGE FUNDS
      9. 2.9 THE FUTURE
    2. Chapter 3 - Legal Environment
      1. 3.1 THE SITUATION IN THE US
      2. 3.2 THE SITUATION IN EUROPE
      3. 3.3 THE SITUATION IN ASIA
      4. 3.4 INTERNET AND THE GLOBAL VILLAGE
    3. Chapter 4 - Operational and Organizational Structures
      1. 4.1 LEGAL STRUCTURES FOR STAND-ALONE FUNDS
      2. 4.2 A NETWORK OF SERVICE PROVIDERS
      3. 4.3 SPECIFIC INVESTMENT STRUCTURES
      4. 4.4 DISCLOSURE AND DOCUMENTS
    4. Chapter 5 - Understanding the Tools Used by Hedge Funds
      1. 5.1 BUYING AND SELLING USING A CASH ACCOUNT
      2. 5.2 BUYING ON MARGIN
      3. 5.3 SHORT SELLING AND SECURITIES LENDING
      4. 5.4 DERIVATIVES
      5. 5.5 LEVERAGE
  6. Part II - Hedge Fund Strategies and Trade Examples
    1. Chapter 6 - Introduction
    2. Chapter 7 - Long/Short Equity Strategies
      1. 7.1 THE MECHANICS OF LONG/SHORT EQUITY INVESTING
      2. 7.2 INVESTMENT APPROACHES
      3. 7.3 HISTORICAL PERFORMANCE
    3. Chapter 8 - Dedicated Short
      1. 8.1 THE PROS AND CONS OF DEDICATED SHORT SELLING
      2. 8.2 TYPICAL TARGET COMPANIES AND REACTIONS
      3. 8.3 HISTORICAL PERFORMANCE
    4. Chapter 9 - Equity Market Neutral
      1. 9.1 DEFINITIONS OF MARKET NEUTRALITY
      2. 9.2 EXAMPLES OF EQUITY MARKET NEUTRAL STRATEGIES AND TRADES
      3. 9.3 HISTORICAL PERFORMANCE
    5. Chapter 10 - Distressed Securities
      1. 10.1 DISTRESSED SECURITIES MARKETS
      2. 10.2 DISTRESSED SECURITIES INVESTING
      3. 10.3 EXAMPLES OF DISTRESSED TRADES
      4. 10.4 HISTORICAL PERFORMANCE
    6. Chapter 11 - Merger Arbitrage
      1. 11.1 MERGERS AND ACQUISITIONS: A HISTORICAL PERSPECTIVE
      2. 11.2 IMPLEMENTING MERGER ARBITRAGE: BASIC PRINCIPLES
      3. 11.3 THE RISKS INHERENT IN MERGER ARBITRAGE
      4. 11.4 HISTORICAL PERFORMANCE
    7. Chapter 12 - Convertible Arbitrage
      1. 12.1 THE TERMINOLOGY OF CONVERTIBLE BONDS
      2. 12.2 VALUATION OF CONVERTIBLE BONDS
      3. 12.3 CONVERTIBLE ARBITRAGE: THE BASIC DELTA HEDGE STRATEGY
      4. 12.4 CONVERTIBLE ARBITRAGE IN PRACTICE: STRIPPING AND SWAPPING
      5. 12.5 THE STRATEGY EVOLUTION
      6. 12.6 HISTORICAL PERFORMANCE
    8. Chapter 13 - Fixed Income Arbitrage
      1. 13.1 THE BASIC TOOLS OF FIXED INCOME ARBITRAGE
      2. 13.2 EXAMPLES OF SUB-STRATEGIES
      3. 13.3 HISTORICAL PERFORMANCE
    9. Chapter 14 - Emerging Markets
      1. 14.1 THE CASE FOR EMERGING MARKET HEDGE FUNDS
      2. 14.2 EXAMPLES OF STRATEGIES
      3. 14.3 HISTORICAL PERFORMANCE
    10. Chapter 15 - Global Macro
      1. 15.1 GLOBAL MACRO INVESTMENT APPROACHES
      2. 15.2 EXAMPLES OF GLOBAL MACRO TRADES
      3. 15.3 HISTORICAL PERFORMANCE
    11. Chapter 16 - Managed Futures and Commodity Trading Advisors (CTAs)
      1. 16.1 THE VARIOUS STYLES OF MANAGED FUTURES
      2. 16.2 EXAMPLES OF SYSTEMATIC TRADING RULES
      3. 16.3 HISTORICAL PERFORMANCE
      4. 16.4 THE FUTURE OF MANAGED FUTURES
    12. Chapter 17 - A Smorgasbord of Other Strategies
      1. 17.1 CAPITAL STRUCTURE ARBITRAGE AND CREDIT STRATEGIES
      2. 17.2 WEATHER DERIVATIVES, WEATHER INSURANCE AND CATASTROPHE BONDS
      3. 17.3 MUTUAL FUND ARBITRAGE
      4. 17.4 ARBITRAGING BETWEEN NAVs AND QUOTED PRICE: ALTIN AG
      5. 17.5 SPLIT STRIKE CONVERSION
      6. 17.6 EVENT-DRIVEN SPECIAL SITUATIONS
      7. 17.7 CROSS-LISTING AND DUAL-LISTING ARBITRAGE
      8. 17.8 FROM PUBLIC TO PRIVATE EQUITY
      9. 17.9 REGULATION D AND PIPES FUNDS
      10. 17.10 IPO LOCK-UP EXPIRATIONS
  7. Part III - Measuring Returns, Risks and Performance
    1. Chapter 18 - Measuring Net Asset Values and Returns
      1. 18.1 THE DIFFICULTIES OF OBTAINING INFORMATION
      2. 18.2 EQUALIZATION, CRYSTALLIZATION AND MULTIPLE SHARE CLASSES
      3. 18.3 THE INEQUITABLE ALLOCATION OF INCENTIVE FEES
      4. 18.4 THE FREE-RIDE SYNDROME
      5. 18.5 ONSHORE VERSUS OFFSHORE FUNDS
      6. 18.6 THE MULTIPLE SHARE APPROACH
      7. 18.7 THE EQUALIZATION FACTOR/DEPRECIATION DEPOSIT APPROACH
      8. 18.8 SIMPLE EQUALIZATION
      9. 18.9 CONSEQUENCES FOR PERFORMANCE CALCULATION
      10. 18.10 THE HOLDING PERIOD RETURN
      11. 18.11 ANNUALIZING
      12. 18.12 MULTIPLE HEDGE FUND AGGREGATION
      13. 18.13 CONTINUOUS COMPOUNDING
    2. Chapter 19 - Return Statistics and Risk
      1. 19.1 CALCULATING RETURN STATISTICS
      2. 19.2 MEASURING RISK
      3. 19.3 DOWNSIDE RISK MEASURES
      4. 19.4 BENCHMARK-RELATED STATISTICS
    3. Chapter 20 - Risk-Adjusted Performance Measures
      1. 20.1 THE SHARPE RATIO
      2. 20.2 THE TREYNOR RATIO AND JENSEN ALPHA
      3. 20.3 M, M AND GRAHAM-HARVEY
      4. 20.4 PERFORMANCE MEASURES BASED ON DOWNSIDE RISK
      5. 20.5 CONCLUSIONS
    4. Chapter 21 - Databases, Indices and Benchmarks
      1. 21.1 HEDGE FUND DATABASES
      2. 21.2 THE VARIOUS BIASES IN HEDGE FUND DATABASES
      3. 21.3 FROM DATABASES TO INDICES
      4. 21.4 FROM INDICES TO BENCHMARKS
  8. Part IV - Investing in Hedge Funds
    1. Chapter 22 - Introduction
    2. Chapter 23 - Revisiting the Benefits and Risks of Hedge Fund Investing
      1. 23.1 THE BENEFITS OF HEDGE FUNDS
      2. 23.2 THE BENEFITS OF INDIVIDUAL HEDGE FUND STRATEGIES
      3. 23.3 CAVEATS OF HEDGE FUND INVESTING
    3. Chapter 24 - Asset Allocation and Hedge Funds
      1. 24.1 DIVERSIFICATION AND PORTFOLIO CONSTRUCTION: AN OVERVIEW
      2. 24.2 STRATEGIC ASSET ALLOCATION WITHOUT HEDGE FUNDS
      3. 24.3 INTRODUCING HEDGE FUNDS IN THE ASSET ALLOCATION
      4. 24.4 HOW MUCH SHOULD BE ALLOCATED TO HEDGE FUNDS?
      5. 24.5 HEDGE FUNDS AS PORTABLE ALPHA OVERLAYS
      6. 24.6 HEDGE FUNDS AS SOURCES OF ALTERNATIVE RISK EXPOSURE
      7. 24.7 RISK BUDGETING AND THE SEPARATION OF ALPHA FROM BETA
    4. Chapter 25 - Hedge Fund Selection: A Route Through the Maze
      1. 25.1 STATING OBJECTIVES
      2. 25.2 FILTERING THE UNIVERSE
      3. 25.3 QUANTITATIVE ANALYSIS
      4. 25.4 QUALITATIVE ANALYSIS
      5. 25.5 DUE DILIGENCE: BETWEEN ART AND SCIENCE
      6. 25.6 ONGOING MONITORING
      7. 25.7 COMMON MISTAKES IN THE SELECTION PROCESS
    5. Chapter 26 - Funds of Hedge Funds
      1. 26.1 WHAT ARE FUNDS OF HEDGE FUNDS?
      2. 26.2 ADVANTAGES OF FUNDS OF FUNDS
      3. 26.3 THE DARK SIDE OF FUNDS OF FUNDS
      4. 26.4 SELECTING A FUND OF FUNDS
      5. 26.5 FUND ALLOCATION: A LOOK INSIDE THE “BLACK BOX”
      6. 26.6 THE FUTURE OF FUNDS OF FUNDS
    6. Chapter 27 - Structured Products on Hedge Funds
      1. 27.1 TOTAL RETURN SWAPS LINKED TO HEDGE FUNDS
      2. 27.2 CALL OPTIONS ON HEDGE FUNDS
      3. 27.3 BASIC NOTES AND CERTIFICATES
      4. 27.4 CAPITAL PROTECTED NOTES
      5. 27.5 THE SECOND GENERATION: THE OPTION-BASED APPROACH
      6. 27.6 THE THIRD GENERATION: THE DYNAMIC TRADING APPROACH
      7. 27.7 THE FOURTH GENERATION: OPTIONS ON CPPI
      8. 27.8 THE FLIES IN THE OINTMENT
      9. 27.9 THE FUTURE OF CAPITAL GUARANTEED PRODUCTS
      10. 27.10 COLLATERALIZED HEDGE FUND OBLIGATIONS
    7. Chapter 28 - Conclusions
  9. Bibliography
  10. Index