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Hedge Fund Investing: A Practical Approach to Understanding Investor Motivation, Manager Profits, and Fund Performance

Book Description

The most up-to-date look at how to understand, and invest in, hedge funds

Hedge funds are an essential part of the alternative investing arena, and will continue to be so for the foreseeable future. It's important that those investing, or thinking about investing, with hedge funds know exactly what they are about. That's why Kevin Mirabile—a financial professional with over twenty years of business development, regulatory, financing, trading, and sales experience in the hedge fund sector—has created Understanding Hedge Fund Investing.

Page-by-page, this reliable resource offers valuable insights into one of the most competitive parts of the investment world. Along the way, you'll become familiar with the evolution of hedge funds and their structure as well as discover what types of individuals and institutions invest using hedge funds. Mirable also takes the time to examine the risks of investing in hedge funds and talks about hedge fund financial statements and taxation.

  • Provides complete coverage of this important investment vehicle, from its different types of investing strategies and styles to what it takes to be a hedge fund manager

  • Multiple-choice questions follow each chapter to assess your comprehension of the topics covered

  • A companion Website contains portfolio models that can be uploaded for use as well as supplementary material that allows you to learn in a hands-on fashion long after closing the book

Hedge funds offer investors opportunities that aren't usually found elsewhere. But to benefit from them, you first must understand them. This book has the information you need to succeed at this difficult endeavor.

Table of Contents

  1. Cover
  2. Series Page
  3. Title Page
  4. Copyright
  5. Preface
  6. Acknowledgments
  7. Part One: Overview
    1. Chapter 1: The Basics of Hedge Fund Investing
      1. What are Alternative Investments?
      2. Hedge Fund Characteristics and Structures
      3. Hedge Funds versus Mutual Funds
      4. Types of Hedge Fund Strategies
      5. Impact of Leverage, Short Selling, and Derivatives
      6. Measuring Performance
      7. Summary
      8. Discussion Questions and Problems
      9. References and Additional Reading
    2. Chapter 2: Who Invests in Hedge Funds and Why?
      1. Academic Research in Support of Hedge Fund Investing
      2. Hedge Funds and Asset Allocation
      3. High-Net-Worth Individuals
      4. Family Offices
      5. Endowments
      6. Public Pension Plans
      7. Sovereign Wealth Funds
      8. Funds of Hedge Funds (FoFs)
      9. Why Not Allocate 100 Percent to Hedge Funds?
      10. Highlights of Recent Investor Surveys
      11. Summary
      12. Discussion Questions and Problems
      13. References and Additional Reading
    3. Chapter 3: Industry Trends, Flows, and Characteristics
      1. Pre-1998, When No One Really Cared
      2. 1998 to 2002, When Everyone Took Notice
      3. 2002 to 2007, The Golden Age
      4. 2008 and 2009, The Root of All Evil?
      5. 2010 to Present, God's Answer to the Yield Gap!
      6. Industry Characteristics
      7. Current State of the Industry
      8. State of U.S. Hedge Fund Regulations
      9. Summary
      10. Discussion Questions and Problems
      11. References and Additional Reading
  8. Part Two: Understanding the Strategies
    1. Chapter 4: Global Macro Investing
      1. Organizational Structure
      2. Portfolio Characteristics
      3. Fund Terms and Conditions
      4. Flows and Performance
      5. What is the Profile of a Global Macro Manager?
      6. Measuring Returns and Evaluating Risk
      7. Summary
      8. Discussion Questions and Problems
      9. References and Additional Reading
    2. Chapter 5: Long and Short Equity Strategies
      1. Organizational Structure
      2. Investment Process and Portfolio Characteristics
      3. Strategy Profit or Loss and Exposure Reporting
      4. Fund Terms and Conditions
      5. Flows and Performance
      6. What is the Profile of a Long and Short Equity Manager?
      7. Measuring Returns and Evaluating Risk
      8. Summary and Outlook
      9. Discussion Questions and Problems
      10. References and Additional Reading
    3. Chapter 6: Fixed Income Relative Value and Credit Arbitrage Strategies
      1. Organizational Structure
      2. Investment Process and Portfolio Characteristics
      3. Strategy Profit or Loss and Exposure Reporting
      4. Fund Terms and Conditions
      5. Flows and Performance
      6. What is the Profile of a Relative Value Manager?
      7. Measuring Returns and Evaluating Risk
      8. Summary and Outlook
      9. Discussion Questions and Problems
      10. References and Additional Reading
    4. Chapter 7: Convertible Arbitrage Strategies
      1. Organizational Structure
      2. Understanding the Investment Process and Portfolio Construction Objectives
      3. Strategy Profit or Loss and Exposure Reporting
      4. Fund Terms and Conditions
      5. Flows and Performance
      6. What is the Profile of a Relative Value Manager?
      7. Measuring Returns and Evaluating Risk
      8. Summary and Outlook
      9. Discussion Questions and Problems
      10. References and Additional Reading
    5. Chapter 8: Multistrategy Funds and Funds of Hedge Funds
      1. Multistrategy Funds
      2. Organizational Structure
      3. Unique Opportunities and Risks Associated with Multistrategy Funds
      4. Flows and Performance
      5. What is the Profile of a Multistrategy Manager?
      6. Strategy Performance and Risk Metrics—Multistrategy Funds
      7. Funds of Funds
      8. Organizational Structure of Fund of Funds
      9. Unique Opportunities and Risk Associated with Fund of Funds
      10. Flows and Performance
      11. What is the Profile of a Fund of Funds Manager?
      12. Index Replication Strategies
      13. Summary and Outlook
      14. Discussion Questions and Problems
      15. References and Additional Reading
  9. Part Three: Evaluating Factors Influencing Individual Fund Risk and Reward
    1. Chapter 9: Measuring Performance and Performance Persistence
      1. Understanding Historical Returns, Normality, Portfolio Sensitivity, and Data Bias
      2. Measuring Normality of Fund Performance Data
      3. Exposure to Specific Adverse Price Movements or Historical Scenarios
      4. Academic Findings on Performance Persistence
      5. Summary and Outlook
      6. Appendix
      7. Discussion Questions and Problems
      8. References and Additional Reading
    2. Chapter 10: Impact of Fund Characteristics and Terms on Performance
      1. Incentives
      2. Agency Theory
      3. Manager Discretion
      4. Summary
      5. Discussion Questions and Problems
      6. References and Additional Reading
    3. Chapter 11: Performing Due Diligence on Specific Managers and Funds
      1. Be Prepared
      2. Learn from the Past—from Both Successes and Failures
      3. If it Looks too Good to be True, it Probably is
      4. Remember, It's Still about Returns!
      5. Common Elements of the Due Diligence Process
      6. Investment Management
      7. Risk Management Process
      8. Fund Operating Environment, Documentation, Financials, and Service Providers
      9. Business Model Risk
      10. Fraud Risk
      11. Summary
      12. Discussion Questions and Problems
      13. References and Additional Reading
    4. Chapter 12: Evaluating the Roles of Service Providers
      1. Who are a Fund's Critical Service Providers?
      2. Fund Administrator
      3. Prime Brokers
      4. Auditors
      5. Legal Counsel
      6. Technology Environment and Service Providers
      7. Other Considerations
      8. Summary
      9. Discussion Questions and Problems
      10. References and Additional Reading
  10. Conclusion
  11. Glossary
  12. Index