Duration: 2 days
- The Hedge Fund Industry and Its Players
- New Regulation and Its Possible Impacts
- Building and Managing Hedge Funds and “Clones”
- Market Neutral, Relative Value and Directional Investing
- Fund-of-Funds and Investable Indexes
- Implementing Hedge Fund Replicating Strategies
- Risk-Return Profiling and Performance Measurement
- Managing a Portfolio of Hedge Funds and Replicating Strategies
- Measuring and Managing “Tail” Risks
The past 4-5 years have been trying times for hedge funds. The turmoil following the collapse of
Lehman in the autumn of 2008 led to a dry-up of liquidity in almost all parts of the financial
system, which made it very difficult for hedge funds to use investment tools such as leverage and
short-selling. However, market conditions are now improving, and the best funds are adapting to the
new post-crisis reality of simpler and more low-cost strategies. Many investors have also been
inspired by the modus operandi of hedge funds and are now increasingly implementing replicating
strategies and “clone” funds.
The objective of this seminar is to give you an in-depth understanding of hedge funds, of the risk
and return characteristics of their investment strategies, and of techniques for constructing and
managing portfolios of hedge fund investments and replicating strategies.
We start with a look at the hedge fund industry and its major players and discuss recent market
developments, including the regulatory changes that are on their way. We then take a closer look at
“institutional” aspects of running such funds. We explain how a hedge fund is set up and look at
the role of the “prime brokers” as providers of services such as financing, securities lending,
clearing and settlement of transactions etc. We also take a closer look at the toolkit of the hedge
fund manager, including the use of short-selling and leverage, and we discuss the challenges of
using these tools during a liquidity crisis. We also explain and demonstrate how these tools can be
used directly by investors in “hedge fund replicating strategies”.
We then explore in more detail the investment strategies of the different types of hedge funds. We
start with market neutral strategies such as “pairs trading” and then move over “convertible
arbitrage”, “fixed income arbitrage” and “event-driven” towards the more directional types of funds
such as “global macro”, “dedicated short”, “emerging markets” and “CTAs”. In each case we carefully
explain the performance profile and the special risks of the strategy and how the strategies can be
implemented as “replicating” strategies. We illustrate using practical case studies and computer
simulations.
Further, we explain how “funds-of-hedge-funds” operate and discuss the advantages and disadvantages
of investing through such funds. We also explain how hedge fund indexes are constructed and how to
invest in so-called “investable indexes” as an alternative to investing through funds of funds.
Finally, we give a thorough explanation of how hedge fund investments and replicating strategies
can be managed in the context of a portfolio. We present and demonstrate traditional and
alternative optimization techniques for constructing optimal portfolios and explain how stress
tests and “extreme VaR” analysis can be performed to assess the “tail” and liquidity risks of hedge
fund investing.
Day One
09.00 - 09.15 Welcome and Introduction
09.15 - 12.00 The Hedge Fund Industry and Its Players
- Hedge Funds and the Financial Crisis
- Case Studies: Recent Hedge Fund Failures
- The Move Towards Stronger Regulation of Hedge Funds
- Focus on Hedge Fund Risks
- Recent Trends: The Evolution of Hedge Fund Clones and Hedge Fund Replicating
Strategies
Building and Managing a Hedge Fund
- Setting Up the Fund
- Regulatory and Tax Issues
-
The Hedge Fund Managers Toolkit
- Short-selling, Leverage, Derivatives
- Prime Brokers – How they Operate Post-Lehman
- Possible Conflicts of Interest in Managing Hedge Funds
- Setting Up a Replicating Fund
- Real Life Case Studies
12.00 - 13.00 Lunch
13.00 - 16.30 Equity Strategies
-
Equity Market Neutral Strategies
- Pairs trading
- Fundamental arbitrage
- Statistical arbitrage
- “Double Alpha”
- Opportunistic Long-Short Strategies
- Dedicated Short Bias
-
Using Futures in Market Neutral Investing
- Porting Alpha
- Equitizing a market neutral strategy
-
Convertible Arbitrage
- Delta-hedging the equity exposure
- Hedging the credit risk
- Case Studies
- Exercises
Day Two
09.00 - 09.15 Brief recap
09.15 - 12.00 Relative Value and Directional Investing
-
Fixed Income Arbitrage
- On-the run/Off-the-run arbitrage
- Yield curve arbitrage
- Mortgage arbitrage
- High yield/CBO arbitrage
- Duration and Multi-Factor Bets
- Global Macro Strategies
- Futures Funds/CTA’s
-
Event-Driven Strategies
- Merger arbitrage and distressed debt investing
-
Capital Structure Arbitrage
- Arbitraging between debt and equity investments
- Emerging Markets
- Implementing Relative Value Fund Replicating Strategies
- Exercises
12.00 - 13.00 Lunch
13.00 - 16.00 Multi-Strategy Funds, Fund-of-Funds and Investable Indexes
- Advantages of Investing through Multi-Strategy Funds
- Fund-of-Funds and the Way they Operate
- Fund-of-Funds – the Ignominy of Madoff
Managing a Portfolio of Hedge Funds
- Risk-Return Profiling of Hedge Fund Investments
- The Portfolio Managers Checklist for Investing in Hedge Funds
- Building a Portfolio of Hedge Fund Replicating Strategies
- Constructing the Optimal Portfolio
- Measuring and Managing “Tail” Risks and Other Risk
-
Performance Measurement
- What is the relevant measure of performance?
- How is tail risk incorporated?
- Exercises
Evaluation and Termination of the Seminar