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Section A Group 6 Abhay Sharma 1A Aniruddh Srivastava 9A Devansh Doshi 16A Manasi Jain 23A Sachin Gupta 38A Vidooshi Joshi 55A

The document summarizes information about hedge funds. It provides details about Abhay Sharma and other members of Section A Group 6. It then discusses the biggest insider trading scandal in hedge fund history involving Rajat Gupta tipping off Raj Rajaratnam. The rest of the document defines key terms related to hedge funds like aggressively managed portfolio, high initial minimum investment, and the 2/20 fee structure. It also distinguishes between different hedge fund strategies like long/short, market neutral, global macro, quantitative, and more. Finally, it discusses factors for evaluating hedge funds and the state of hedge funds in India.

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rohini jha
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0% found this document useful (0 votes)
69 views25 pages

Section A Group 6 Abhay Sharma 1A Aniruddh Srivastava 9A Devansh Doshi 16A Manasi Jain 23A Sachin Gupta 38A Vidooshi Joshi 55A

The document summarizes information about hedge funds. It provides details about Abhay Sharma and other members of Section A Group 6. It then discusses the biggest insider trading scandal in hedge fund history involving Rajat Gupta tipping off Raj Rajaratnam. The rest of the document defines key terms related to hedge funds like aggressively managed portfolio, high initial minimum investment, and the 2/20 fee structure. It also distinguishes between different hedge fund strategies like long/short, market neutral, global macro, quantitative, and more. Finally, it discusses factors for evaluating hedge funds and the state of hedge funds in India.

Uploaded by

rohini jha
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Section A Group 6

Abhay Sharma 1A
Aniruddh Srivastava 9A
Devansh Doshi 16A
Manasi Jain 23A
Sachin Gupta 38A
Vidooshi Joshi 55A
Biggest insider-trading scandal in HEDGE FUND
history
Rajat Gupta had tipped off Raj Rajaratnam, the owner of $3 billion Galleon fund
about Warren Buffett's confidence-boosting $5 billion investment in the teetering
investment bank in September 2008, during the depths of the market turmoil.
Aggressively Managed High Initial Minimum
Portfolio Investment

HEDGE
FUNDS

Largely Illiquid High Risk High Returns


 Formula 2/20: Manager receives 2% of assets under
management and 20% of profits made annually
 Hurdle Rate : Minimum returns to be generated annually
before 20% commission clause is applicable
 High water mark: Benchmark decided based on previous
year’ performance, based on which 20% commission paid
only if present returns exceed the benchmark
Fund of
Treasury
Funds

Family Pension
offices funds

Private Endowm
banks ents
Long Only Short Only

• A strategy in which a hedge • A strategy in which a hedge


fund owns long positions in fund only sells stock short
securities • A very risky strategy
• Looking for return to the • Portfolio managers running
upside to outperform their short only portfolios have
benchmarks been absolutely crushed
• If the BSE SENSEX is a over the past couple of years
fund's benchmark and is up as the rising market tide has
10%, and the hedge fund is lifted most securities
up 15%, the extra 5%
between the two is the
return generated by the
portfolio manager
Long/Short Market Neutral

• Using both the strategies • The concept is to reduce the


• Say 70% of the stocks are net exposure to markets to
long traded and 30% are zero
short sold • Removes any impact of
• Then the difference market movements
between the two is 40% • Fund manager relies solely
• This is called as the net on his or her ability to pick
exposure to markets stocks
• Achieved by
• Equal investment in long
and short strategies
• Reducing beta of overall
fund to zero
Quantitative Hedge
Global Macro
Funds
• Investment in stocks, • Quantitative hedge fund
bonds, & other derivative managers often employ
securities computer programmers
• Highly leveraged directional who comb the statistical
bets on underlying assets models and data looking to
• Limited capacity issues find alpha that hide behind
because of diversity of market abnormalities
investments, market size & • This can be exploited by
global perspective super high-frequency
trading programs that can
buy and sell thousands of
stocks or futures instantly
• Unfortunately, they do not
always anticipate market
commentary
Managed portfolios Diversified

Professional management of
money
Mutual Funds Hedge Funds

Aggressively pursue
Risk averse
risk

Investments Highly speculative


Fundamental based investment

Available to all Available to only high


investors net worth investors
Mutual Funds Hedge Funds

Lesser fees Higher fees

Need for high No need for


disclosure disclosures

Generally
Regulated
unregulated
Absolute Returns

The Sharpe Ratio

Benchmarks
• Analyze relative returns versus a benchmark example the S&P 500 Index

Quartile Chart
• the top quartile of peers on an absolute return comparison, standard
deviation, and a variety of other metrics
Qualitative Factors
• Evaluations of management
A fund must have good, strong management just like a
company
• Back-office operations
Including trading, compliance, administration, marketing,
systems, etc
• Scale
It takes a subjective opinion to determine whether a fund's
strategy will be impacted by having too large of a fund and
by how much returns will be affected
 A novelty in India
 New investment style in a country that traditionally prefers
buying and holding stocks
 Domestic investors are not used to the high fees commanded
in the hedge fund industry
 High success threshold in a country where plain vanilla bank
deposits offer nearly double-digit returns
 India-focused foreign funds returned 12.3 percent last year
 Overseas funds are not regulated
 SEBI imposes
 A 1,000-investor limit
 A 10 million rupee (US$188,000) minimum investment
requirement
 A minimum size of 200 million rupees (US$3.8 million)
 Typically, India-based hedge funds are relatively risk-averse
and invest in illiquid equity funds
Source: CFA Institute

Overall, Hedge Fund index performance outdoes Market Index by a


wide margin
Indian Hedge Funds performance weak compared with Indian
Market Index
• Long-term outperformance by hedge funds occurred solely due to
outperformance in down markets
• The converse is also true. Hedge funds underperformed when the
market rose, rising 21.8% per annum less than index returns
• The market “won” more often and won by a great margin than
when it lost
• But, it turns out the compounded return of hedge funds and the
market during this period was roughly the same. The math of
compounding tells this story
 Assets under management approximately Rs. 20 Crs
($3.28 million)
 Advisory fund: returned 11.86 percent so far this year.
 Top 5 Holdings (%)
 Syndicate Bank (12.60)
 Satyam Computer Services Ltd. (12.20)
 Mahindra & Mahindra Financial Services Ltd. (12.10)
 Dabur India Ltd. (11.70)
 Godrej Consumer Products Ltd. (10.17)
 Aiming to raise $1.25 billion for the latest fund to increase
its stake in Facebook

 The firm is known for its long position


 Apple
 Google
 LinkedIn
 Major Stakes in:
 MakeMyTrip
 Just Dial
When Warren Buffett searched for his successors to
manage Berkshire Hathaway’s stock investments,
he had the world as his oyster. Sure enough, he
hired two hedge fund managers!
THANK YOU

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