Guide to Hedge Funds: What They Are, What They Do, Their by Philip Coggan

By Philip Coggan

Hedge fund managers are the recent "masters of the universe." the easiest earn greater than $1 billion a 12 months and are so wanted that they could find the money for to show investor funds away. The money they run have, to some degree, tested an alternate economic system, exchanging banks as creditors to dicy businesses, appearing as prone of liquidity to markets and insurers of final hotel for dangers reminiscent of hurricanes, and exchanging pension cash and mutual money because the most vital traders in lots of companies—even now and again deciding to buy businesses outright. The revised and up-to-date moment variation of this full of life consultant sheds a lot wanted mild at the international of hedge cash by way of explaining what they're, what they do, who the most avid gamers are, the rules affecting them, the arguments as to if they seem to be a strength for sturdy or undesirable, and what the long run holds for them."More humans have a view approximately hedge cash than learn about them. Philip Coggan bridges the data hole during this basically written advisor. each bankruptcy is a goldmine of knowledge and research, making it effortless to profit approximately hedge money. No investor, no funding adviser, no trustee, no dinner-table conversationalist may still show critiques at the quarter until eventually they've got learn this book."—Elroy Dimson, BGI Professor of funding administration, London enterprise School"While a lot has been written approximately hedge fund techniques and their (occasionally stunning) mess ups, we've not but noticeable a normal primer to assist the investor comprehend the area of hedge cash. Philip Coggan offers us with precisely that—a well-written, succinct precis of a global all of us have to comprehend better."—Rob Arnott, Chairman of study associates and Editor Emeritus of the monetary Analysts magazine

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Extra info for Guide to Hedge Funds: What They Are, What They Do, Their Risks, Their Advantages (2nd ed)

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The distinction, says Mike O’Brien, head of the group’s European institutional business, is that the group “doesn’t torture the data to death”. That process can lead to discovering spurious statistical links. Instead, a market anomaly has to have a sound theoretical basis as well as a record of outperformance. indd 36 15/09/10 11:41 AM THE PLAYERS relative to the index in a bid to produce outperformance at low risk. A move into hedge funds was the logical follow-through. The combined BGI/Blackrock has over $40 billion under management in single-strategy hedge funds and funds-of-funds.

Other funds Hedge funds are ever inventive and there are some funds that do not fit plausibly into any of the above categories. Volatility arbitrage funds, for example, look at the fluctuations of different markets. If they expect volatility to rise, they might buy options that will rise in value. If they expect volatility to fall or be low, they will sell options (the equivalent of offering insurance). indd 32 15/09/10 11:25 AM HEDGE FUND TAXONOMY Some strategies can be dubbed “alternative beta”, in that they are not so much hedging as trying to exploit the potential for outsized returns in unconventional asset markets.

It had to offload those positions at a fire sale price. There is no reason, in theory, why current fixed income arbitrage managers should run into the same problems. They have two main avenues for profit: the yield curve and credit spreads. On the yield curve, as in the LTCM example above, they can bet on its shape. Traditionally, long-term bonds have yielded more than short-term bonds; if the shape does not conform to this pattern, they can bet on a return to the status quo. On credit, they can bet that wide spreads will narrow or that narrow spreads will widen.

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