Hedge Funds: A Preamble. Michael F. Percia

Transcription

1 Hedge Funds: A Preamble Michael F. Percia 1

2 Hedge Funds: A Preamble Presentation Overview Hedge Funds 101 Discussion/Questions Definition Strategies Industry Size Relative Risk/Return 2

3 Hedge Funds: A Preamble Hedge Funds Defined Invest in Public/Nonpublic Securities Privately Managed Long /Short Exposure High Net Worth Clients Use Derivative Strategies and Leverage Concentrated Portfolios Narrow Investment Strategies Simple definition: alternative investment strategy Source: Handbook of Alternative Assets 2 nd Ed. Mark Anson 3

4 Hedge Funds: A Preamble Strategies Market Directional Long/Short Equity Market Timing Corporate Restructuring Distressed Securities Merger Arbitrage Convergence Trading Fixed Income Arbitrage Equity Market Neutral Opportunistic Global Macro Fund of Funds Source: Handbook of Alternative Assets 2 nd Ed. Mark Anson 4

5 Hedge Funds: A Preamble Relative Industry Size (as of 12/31/07) Trillions ($) Global Equities Global (domestic) Bonds Global Pension Funds Global Mutual Funds Global Hedge Funds Source: AIMA s Roadmap to Hedge Funds, Nov Mark Anson 5

6 Hedge Funds: A Preamble Industry Size (as of 06/30/08) $ Trillions Hedge Fund Research Hedge Fund Intelligence Hedgeund.net Hedge Funds Hedge Funds (FOF only) Source: AIMA s Roadmap to Hedge Funds, Nov Mark Anson 6

7 Hedge Funds: A Preamble Advertised Hedge Fund Benefits Lower risk than equities Low correlation compared to traditional asset classes In summary: A way to hedge your portfolio bets Source: AIMA s Roadmap to Hedge Funds, Nov Mark Anson 7

8 Hedge Funds: A Preamble Why do we care about correlations? Correlatation measures the intensity and direction of a relation between two variables. The less correlated assets in a portfolio are, the more diversification benefits the portfolio enjoys. Ideally, when one asset or asset class decreases in value, we would like to have another asset or asset class increase in value. Source: AIMA s Roadmap to Hedge Funds, Nov Mark Anson 8

9 Hedge Funds: A Preamble Relative Risk-adjusted Return ( ) Return Risk Risk-adjusted Return Highest Hedge Funds International Stocks Hedge Funds Domestic Stocks Domestic Stocks Treasury Bonds Treasury Bonds Hedge Funds Domestic Stocks Lowest International Stocks Treasury Bonds International Stocks Source: Handbook of Alternative Assets 2 nd Ed. Mark Anson 9

10 Hedge Funds: A Preamble Hedge Fund Industry Sources of Capital (as of 12/31/07) Endowments, 12% Corporations, 12% Individuals (High net), 31% Pension Funds, 14% Other, 31% Source: AIMA s Roadmap to Hedge Funds, Nov Mark Anson 10

11 Hedge Funds: A Preamble Questions 11

12 (BREAK) 12

13 An innovative investment experiment: Synthetic Hedge Funds Michael F. Percia 13

14 Synthetic Hedge Funds Presentation Overview Synthetic Hedge Funds Discussion/Questions Definition Mechanics Example 14

15 Synthetic Hedge Funds Synthetic Hedge Funds Defined Investment funds that supposedly behave like hedge funds without investing in the underlying assets of hedge funds. 15

16 Synthetic Hedge Funds Why do we care about Synthetic Hedge Funds? Hedge Fund exposure for You & Me Source: Handbook of Alternative Assets 2 nd Ed. Mark Anson 16

17 Synthetic Hedge Funds How Synthetic Hedge Funds Work HF HF HF Index SHF HF 17

18 Synthetic Hedge Funds Symbol: An Example IQ Hedge Multi-Strategy Tracker ETF QAI Expense Ratio: 1.09% Inception Date: 3/25/09 Avg. Volume: 26,000 Index: Primary sources of index data: IQ Hedge Multi-Strategy Index Hedge Fund Style Series from HFR & Credit Suisse 18

19 Synthetic Hedge Funds IQ Hedge Multi-Strategy Tracker ETF Top 10 Holdings (as of 12/31/08) All holdings are publically traded 19

20 Synthetic Hedge Funds IQ Hedge Multi-Strategy Tracker ETF: Performance As of 3/31/09 YTD 1 YR 3 YR 5YR IQ Hedge Fund Index HFR Hedge Fund Index Domestic Stocks

21 Synthetic Hedge Funds IQ Hedge Multi-Strategy Tracker ETF Pros Access for all Liquidity (Intraday, no lockups Lower correlation Transparency Lower fees Lower mgr. specific risk Cons Tracking error to index Index performance Uncharted waters 21

22 Synthetic Hedge Funds Questions 22

23 Appendix 23

24 Synthetic Hedge Funds Relative Risk/Return ( ) Asset Class Annualized Return Standard Deviation Sharpe Ratio S&P % 18.42% 0.43 Treasuries-10yr 8.48% 8.13% 0.49 EAFE 4.87% 19.91% 0.02 HFRI Comp % 11.42% 0.92 HFRI FOF 10.43% 9.51% 0.62 Source: Handbook of Alternative Assets 2 nd Ed. Mark Anson 24

25 Synthetic Hedge Funds IQ Hedge Multi-Strategy Tracker ETF 5-yr. Index Data vs. S&P 500 (as of 12/31/08) Alpha: 6.71% Beta: 0.41 Correlation: 0.73 remove 25