We will extend our findings about undercapitalization in Table 4 based on our conclusions from Table 3. From Table 3, we know that there are 222 undercapitalized live hedge funds, and it consists only 8.1% of all the live funds. From this we can reach the conclusion that only a small fraction of live hedge funds are undercapitalized. Most of the live hedge funds (about 91.9%) can stay out of the risk of being undercapitalized. While the undercapitalized ratio for dead funds is 12.3%, so more dead funds are undercapitalized compared with the ratio of live funds. Since the ratio of undercapitalization plays an important role in determining the performance of a hedge fund, we will take a further look into the details of undercapitalization in Table 4. We list a number of variables that would usually have influence on the cap ratio. By comparing the different variable values under the category of adequately capitalized funds and under-capitalized funds, we can determine the key elements that would usually influence the cap ratio of a hedge fund. Table 4 also illustrates the comparative characteristics between live and dead hedge funds. We can specify the characteristics in the following points. First, the mean of the net asset for the undercapitalized live funds is $88.4 million and the corresponding value for the capitalized funds is $206.1 million. The huge difference between these two values means a positive condition in the capital adequacy of the live funds. More live hedge
Fund flows are positively related to past performance, and better performing partnerships are more likely to raise follow-on funds and larger funds. Figure 1 aggregates the historical returns of Exhibition 1 and compares them to the fund sizes of Accel since 1983 vintage. The graph shows that there is a positive correlation between the historical returns of both the average and upper quartile with the fund size of Accel. However, it can be seen that as returns for top performers and average VC funds decline after 1996, Accel was still able to increase its fund size by 83%. Accel continued ability to raise larger funds implies not only the success of the company’s past strategic performance but also the existing high demand for investing with Accel. Hence, it would be justified that for the latest VC fund Accel has proposed to charge a carried interest of 30% rather than 20%. Our analysis then looks into this latest VC fund, Accel Partners VII, and forecasts the NPV and IRR of the investment under specific standard assumptions. Table 2 shows a part of our NPV and IRR calculations under different steady growth rate. It should be noted that for investors to be indifferent between investing in a typical 20/80 VC fund versus the 30/70 Accel VII fund, Accel must outperform the average in every NPV and IRR
The topic of activist hedge funds, and the freedom in which they are allowed to target companies has risen a lot of concern amongst politicians, CEOs and the American public. Thus, the proposed rule has attracted a lot of attention and many comments, either for or against the rule.
This document is authorized for use only by Yen Ting Chen in FInancial Markets and Institutions taught by Nawal Ahmed Boston University from September 2014 to December 2014.
Citadel ranks as the eleventh largest hedge fund manager in the world. The funds from investment strategies like credit, fixed income, quantitative strategies, commodities and equities are managed by Citadel. This company has a strong risk management culture and state of art technology. From 2009-2010 the funds capped solid returns with more than 20% of gains. Citadel became first foreign hedge fund to complete Yuan fundraising that allows Chinese investors to invest in overseas hedge funds.
Established in January 1999, Pine Street Capital (PSC) was a market-neutral hedge fund that specialized in the technology field, facing market risk and trying to decide whether and which way to use in order to hedge equity market risk. They choose technology sector because the partners of PSC felt that they have enough ability to evaluate this sector and specially be good at picking out-performing stock. Short-selling of NASDAQ and options hedging strategy are the two major hedging choices for PSC. Either strategy has its own advantages in different economic periods and conditions. The fund has just through one of the most volatile periods in NASDAQ 's history, and it was trying to decide whether it should continue its risk management
Fidelity Contrafund seeks for cash-rich and fast-going companies which suffer little debts. This feature is typically reflected in its portfolio allocation showed in its’ semiannual report (see Appendix 3). The fund assets are primarily invested in common stocks, especially the U.S. stocks, while about 9.7% assets (2015) are still invested in the foreign market. The common stocks invested occupied about 97.6% of the whole asset allocation, in which technology stocks account for nearly a quarter of proportion, besides that, finance, health care and consumer discretionary also heavily represented, since these
The success of the model is attributed to Yale’s ability to combine both quantitative analysis (mean-variance analysis) with market judgments to structure its portfolio. In addition, Yale also uses statistical analysis to actively test their models with factors affecting the market, therefore understanding the sensitivity of their portfolio in response to various market changes. Yale also follows and forecasts the cash flow of private equity and real assets in its portfolio to decide the need for hedging.
There is a certain air of secrecy surrounding the hedge fund industry that makes investing in these vehicles a scary endeavor for some. As hedge funds are not regulated to the same extent as mutual funds, many firms choose to limit the disclosure of their operations and holdings. Because of this lack of transparency combined with media criticism, many myths and fallacies regarding the industry have surfaced. Although this lack of transparency may leave investors less informed and more susceptible to risk when investing in a hedge fund, it also allows for higher returns that cannot be achieved by more traditional investment vehicles. The benefits of low disclosure may outweigh the costs for certain investors, but the level of transparency
In his book, Capital Ideas: The Improbable Origins of Modern Wall Street, Peter L. Bernstein examines the innovative financial work of various academics that helped shape modern Wall Street. Bernstein sets out to show that Wall Street is in fact a fundamental and useful model to follow, rather than something to be feared. He points out that, “By combining the linkage between risk and reward with the combative nature of the free market, these academics brought new insights into what Wall Street is all about and devised new methods for investors to manage their capital.” (2) These impressive scholars have incorporated scientific measurement to the art of finance, forever
Hedge funds feature returns different from those of mutual funds. The different trading strategies and investment styles are amongst a few factors that explain the difference (Boyson, 2010). The institutional and individual investors create a common pool of funds and employ professional managers to manage the fund. Ideally the manager is compensated from two sets of fees: management fee and performance fee. They impose a management fee based on the size of the asset managed, usually at the rate between 1-2%. A performance fee will be imposed at the rate between 20-30% of the returns on the investments made (lecture notes).
As of December, 31, 2013, $ 14,967 amount is recorded in the balance sheet as property, plant, and equipment net for Coca-Cola, and 83 percent of total assets does each company invest in property, plant, and equipment. On the other hand, $ 18,575 amount is recorded in the balance sheet for PepsiCo, and 76 percent of total assets invest in property, plant, and equipment, which is lower than Coca-Cola.
2 MotivationShort Interest ratio has been of interest to many hedge funds that trade on fundamen-tals of the firms. During our literature survey, we observe that some studies suggestthat high levels of short interest predict future returns, but the rationale behind thisthis predictability is not well understood. There are various theories that lead todifferent interpretations. One of the study suggests that stocks are overvalued in thepresence of short sale constraint and hence the subsequent negative abnormal returnsrepresent a correct of this overvaluation. Second suggests that short interest sellersare highly
Koch and MacDonald, (2010), discussed the problem of finding an optimal Gap ratio, they stated that there is no specific optimal Gap ratio for all financial institutions and each company “must evaluate its overall risk and return profile and objectives to determine its optimal GAP”. A number of hedging studies suggest that a full hedge might not always be optimal for a financial intermediary (Grammatikos and Saunders, 1983; Junkus and Lee,
There is a severe variation of capital at risk of high frequency trading when compared to capita at risk for institutional investors as noted by KF&Y. Capital at risk is the total amount of capital that an organization deploys in all of its market positions at any specific point of time, as defined by IRRC institute. A high frequency trader generally keeps its capital at risk negligible. Although, HFT companies contributes for nearly 65% by volume in equities, their capital risk is small. On the other hand, the institutional investors or non- high frequency traders amount to a larger market ownership, more than 64% at the end of 2009. The hypothesis is that a small percentage of minority ownership