Investment Strategies of Hedge Funds PDF

Investment Strategies of Hedge Funds PDF

Investment Strategies of Hedge Funds PDF provides an intensive learning experience, defining hedge funds, explaining hedge fund strategies while offering both qualitative and quantitative tools that investors need to access these types of funds.

Category: Forex

Author: Filippo Stefanini 

Language: English

Free Download link: At the end of the post



Hedge Funds. Rarely has a financial term stimulated such a broad spectrum of conflicting views. Hedge funds have been vilified by some people, and blamed for almost every negative occurrence in financial markets. This accusation is predominantly based on one famous hedge fund meltdown in 1998 which, some say, came close to toppling the global banking system. Hedge funds are often perceived to be the riskiest and most volatile of investments, buccaneers operating in an unregulated environment, using irresponsible and unwarranted leverage to deliver their returns. Hardly a week goes by without an article in the international press casting a shadow over the industry.

Other people have a diametrically opposed view. They exalt hedge funds as the best performing investments around and laud their managers as financial geniuses, turning some into superstars of the financial industry. This view maintains that hedge funds are able to protect investors’ capital efficiently in times of financial market strife.

The truth, as is almost always the case, lies somewhere in between. Some hedge funds are populated by some of the best brains in the financial industry using sophisticated and very efficient investment strategies to deliver outstanding returns. Others are populated by mediocre talent and are run in a risky manner. The hedge fund industry is nothing more than a sophisticated part of the general investment industry as a whole, with money managers investing in an extremely diversified and extensive range of strategies.

Where does that leave most investors who want to evaluate and understand the hedge fund universe and take advantage of the talent that exists therein? In the vortex of opinion, counter-opinion and argument, investors need a guiding hand. Hedge fund investing requires a level of sophistication to understand both the risks involved and also the suitability of any investment relative to the objectives of the investor. Although such an assessment continues to be the role of an investment professional, publications such as this book are contributing to a much greater understanding of hedge fund investing among the wider investor audience.

In his book Filippo Stefanini has striven to demystify the hedge fund industry, shedding light on various strategies used to deliver returns. Filippo has reaffirmed the attributes I have come to know over the course of our professional collaboration these last four years – diligence, precision and attention to detail – and combined these with the ability to present complex financial strategies and their background, clearly and succinctly.

This publication is a great educational tool for existing and potential investors in hedge funds.

Michael Perotti
Alternative Asset Management Group
Union Bancaire Privée

Table of Contents- Investment Strategies of Hedge Funds PDF




About the Author.

1. A Few Initial Remarks.

1.1 What is a hedge fund?

1.2 History of hedge funds.

1.3 Proprietary trading.

1.4 The growth of the hedge fund industry.

1.5 Main characteristics of the current industry.

1.6 Capacity.

1.7 Commissions.

1.8 Industry performance overview.

1.9 The hedge fund manager.

1.10 Alpha and beta.

1.11 Investment strategies.

1.12 Explorers and frontiers.

1.13 SEC’s vigilance.

1.14 Considerations on performance sustainability.

1.15 Capacity and performance sustainability.

1.16 Ability or chance?

1.17 The importance of avoiding losses.

1.18 Decreasing returns with longer investment horizons.

1.19 Business case: A hedge fund start-up.

2. Arbitrage.

2.1 The transaction costs barrier.

2.2 ADR arbitrage.

2.3 Arbitrage between off-the-run and on-the-run thirty-year Treasury Bonds.

3. Short Selling.

3.1 A brief history of short selling.

3.2 What is short selling?

3.3 A simplified example of short selling on US markets.

3.4 Who lends securities for short selling?

3.5 Regulations governing short selling.

3.6 The risks of short selling.

3.7 Short interest and short interest ratio.

3.8 Wall Street’s alter ego.

3.9 Stock picking in short selling.

3.10 The art of contrary thinking.

3.11 Measuring the strategy’s historical performance.

3.12 Conclusions.

4. Long/Short Equity.

4.1 History of the first hedge fund.

4.2 Market exposure.

4.3 Management styles.

4.4 Specialized long/short equity funds.

4.5 Share class arbitrage.

4.6 Pairs trading.

4.7 Covered call and covered put options sale.

4.8 Strategy’s historical performance analysis.

4.9 Equity market neutral.

5. Merger Arbitrage.

5.1 A brief history of M&A.

5.2 Strategy description.

5.3 Risk associated with the outcome of an extraordinary corporate event.

5.4 Types of mergers and acquisitions.

5.5 Risk management.

5.6 Strategy’s historical performance analysis.

5.7 Conclusions.

6. Convertible Bond Arbitrage.

6.1 Why issue a convertible bond?

6.2 A brief history of convertible bonds.

6.3 The convertible bond market.

6.4 Definitions.

6.5 Quantitative models to value convertible bonds.

6.6 Implied volatility and historical volatility.

6.7 Convertible bond arbitrage.

6.8 Mandatory convertibles.

6.9 Strategy’s historical performance analysis.

6.10 Risk control.

6.11 Conclusions.

7. Fixed Income Arbitrage.

7.1 Issuance driven arbitrage or snap trade.

7.2 Yield curve arbitrage.

7.3 Intermarket spread trading.

7.4 Futures basis trading or basis trading.

7.5 Swap spread trading.

7.6 Capital structure arbitrage.

7.7 Long/short credit or credit pair trading.

7.8 Carry trade.

7.9 Break-even inflation trades.

7.10 Cross-currency relative value trade.

7.11 Treasuries over eurodollars (TED) spread or international credit spread.

7.12 Leveraged loans.

7.13 Strategy’s historical performance analysis.

7.14 Conclusions.

8. Strategies on CDOs.

8.1 A brief history of CDOs.

8.2 Hedge fund investment strategies.

8.3 Conclusions.

9. Mortgage-Backed Securities Arbitrage.

9.1 A brief history of mortgage-backed securities.

9.2 Originators of mortgage-backed securities.

9.3 The industry of mortgage-backed securities.

9.4 The sensitivity of mortgage-backed securities to interest rates.

9.5 Arbitrage on mortgage-backed securities.

9.6 Risk factors.

9.7 Strategy’s historical performance analysis.

9.8 Conclusions.

10. Distressed Securities.

10.1 A brief history of distressed securities.

10.2 The distressed debt market.

10.3 Bankruptcy laws.

10.4 Strategy description.

10.5 Risks.

10.6 A brief consideration of the directional nature of distressed securities hedge funds.

10.7 Trade claims.

10.8 Strategy’s historical performance analysis.

10.9 Conclusions.

11. Event Driven or Special Situations.

11.1 Activist investors.

11.2 Strategy’s historical performance analysis.

12. Multi-strategy.

12.1 Multi-strategy funds.

12.2 Strategy’s historical performance analysis.

13. Managed Futures.

13.1 What is a futures contract?

13.2 A brief history of managed futures.

13.3 Managed futures strategy.

13.4 “Do storks deliver babies?” and the predictability of financial time series.

13.5 Strategy’s historical performance analysis.

13.6 Conclusions.

14. Global Macro.

14.1 A brief history of macro funds.

14.2 Investment strategies adopted.

14.3 The characteristics shared by great traders.

14.4 The legs of a trade.

14.5 The theory of reflexivity by George Soros.

14.6 Debt emerging markets.

14.7 Strategy’s historical performance analysis.

14.8 Conclusions.

15. Other Strategies.

15.1 Holding company arbitrage.

15.2 Closed-end fund arbitrage.

15.3 Statistical arbitrage.

15.4 Index arbitrage.

15.5 Volatility trading.

15.6 Split-strike conversion.

15.7 Lending.

15.8 PIPEs or Regulation D.

15.9 Real estate.

15.10 Natural resources.

15.11 Energy trading.

15.12 Natural events.

16. Hedge Fund Performance Analysis.

16.1 Risks inherent in hedge fund investments.

16.2 Hedge fund strategies indices.

16.3 Statistical analysis of indices.

16.4 Value at risk.

16.5 Statistical analysis of data from the LIPPER TASS database.

17. Conclusions.



About the author

Filippo Stefaniniis the Head of Research at Eurizon AI SGR where he is responsible for analysing, selecting and monitoring hedge funds and newcits funds.  Eurizon AI SGR SpA is the alternative investment company of the banking group Intesa San Paolo and specialises in managing funds of hedge funds. He has been a lecturer in Risk Management at the University of Bergamo (Italy) since 2007. Filippo Stefanini was  the Deputy Chief Investment Officer and Head of Asset Allocation at Aletti Gestielle Alternative SGR from 2001 to mid 2008. He previously worked as a consultant for Accenture in the Asset Management and Investment Banking areas. Filippo is the author of “Investment Strategies of Hedge Funds” and “Newcits: Investing in UCITS Compliant Hedge Funds”, both published by John Wiley & Sons. He has also co-authored some Italian language books published by Il Sole 24 Ore entitled “I fondi newcits”, “Hedge Funds: strategie di investimento” and “Hedge Funds: Investire per generare rendimenti assoluti”.

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