Hedge Funds: A Case Study

Improved Essays
What are Hedge Funds?
There are numerous big players in the financial world. Some of these players take on extremely high risks and promise to produce equally high and sustainable returns, while others take on a significantly lower risk and usually deliver lower returns. Hedge funds and their managers align with the high risk/high yield model. Since the creation of the first hedge fund in 1949, this model has continually proven to be one of the most lucrative and yet most potentially damaging investment strategy.
Hedge funds, in definition, are simply “an investment vehicle in which investors pool their funds to achieve an active return through various investing strategies” ("Hedge Fund Definition | Investopedia"). The name "hedge fund" came
…show more content…
Keown, “in order to invest, you have to have a net worth of at least $1 million…or your net income has to have been at least $200,000 ($300,000 if married) for the past 2 years”. In addition to this, hedge funds are highly unregulated, which opens doors to a variety of investment options, but increases the level of risk exponentially. This uncertainty of risky investments, can lead to very high fees “even when the fund loses money” (Keown, 2013).
Roles of Hedge Fund Managers
The roles of a hedge fund manager is often liken to the role of a mutual fund manager. Hedge fund managers are predominately in charge of maintaining and operating the daily affairs of the fund. This activity involves creating and executing ongoing investment decisions regarding the structural composition of the fund 's portfolio. Furthermore, while they perform these functions, they also have the great responsibility of “managing a fund 's risk and return, marketing strategy, and capital funding from unit sales” ( ). A job of this caliber comes with a hefty paycheck and while “hedge fund managers are compensated handsomely… they face tremendous pressure because of the high risk of the portfolios that they manage” (
…show more content…
First it involves a combination of both technical (hard skills) and exemplary soft skills. The features that most hedge funds desire from individuals, are those who are humble, motivated and smart. In other words, in order to become a hedge fund manager, one must develop a shrewd financial sensibility, through the highest level of education; most hedge fund managers have MBAs or Professional degrees in their field from Ivy League colleges. In addition to this, one must also be adaptable and hungry.
The financial world is still reeling from the economic crisis of 2008. Hedge funds were badly hit, with many hedge funds being virtually wiped out. In response to this, there has been a driving effort to reposition and restructure how hedge funds operate. This task was not an easy one, and “it took almost two years for confidence to come back” (Gregoriou & Lhabitant, 2011) . As a result, hedge fund managers must also have the ability to adapt and illicit confidence even when the markets fall. This characteristic is paramount when faced with such a high level of

Related Documents

  • Decent Essays

    Jeffrey Schneider has risen to the peak of his profession with one thing in mind; deep knowledge in securities management, alternative investments and investment banking. He has proven to be an influential asset to the financial services market for over 17 years. He gives his outstanding team of employees the credit for the firm’s progress. After working with several financial services firms, he gained professional skills in alternative investment strategies and how to create and maintain relationships with his clients. During his working at Paradigm Global Advisors in 2002, he obtained the skill of being able to analyze managers.…

    • 1026 Words
    • 5 Pages
    Decent Essays
  • Improved Essays

    In Duff McDonald’s paper, The Running of the Hedgehogs, he talks about a certain type of investment called hedge funds. These funds are compared to buying multi-million dollar art pieces that can be sold at a higher price later on, a past time for the ultra rich. The article talks about as of now, there are few regulations regarding hedge funds versus mutual funds. But mentions there are 9,000 hedge funds, with 351 managing $1 billion (page 166). He further explains that if 1 out of 3 prominent hedge funds were to blow up, it would cause a domino effect to the broader markets (page 169).…

    • 278 Words
    • 2 Pages
    Improved Essays
  • Improved Essays

    Ankit Case Study

    • 564 Words
    • 3 Pages

    The name of our mutual fund is AnKit, we choose this because the work kit is something that helps assist or it is a tool that helps people get the job done. This is why we choose the name AnKit because we are there to help someone with funds. Our mutual funds is aiming at a low risk, because high risk is for long term, but the horizon time is only ten years and that is nearly enough time for long term. There for having lower risk will help keep score positive.…

    • 564 Words
    • 3 Pages
    Improved Essays
  • Improved Essays

    Pwc Executive Summary

    • 316 Words
    • 2 Pages

    PwC’s business has oversight from the U. S. Securities and Exchange Commission (SEC). The SEC was established by Congress in 1934 as a result of the market crash known as the Great Depression. Its role is to monitor the securities industry and capital markets. One of the core basis’ for the SEC was to secure truth from companies regarding their investments activities and ensure stability in the marketplace for investors.…

    • 316 Words
    • 2 Pages
    Improved Essays
  • Great Essays

    Moreover, through this book, Mr. Graham tells much practical advice to the common investors and lays out his philosophy of investing and some key investing ideas, which permit any investors to earn stable profits and reduce the risk by following his investing…

    • 1953 Words
    • 8 Pages
    Great Essays
  • Improved Essays

    Knowing how to invest or what to invest in is not knowledge that comes naturally. The terminology in its-self is like a foreign language. Words like 401k, IRA, portfolio, diversification are just a few you hear on the television, radio, and even from friends. There is also the fear of losing money invested due to Ponzi schemes, which too frequently make headline news. For example, Bernard Madoff swindled billions of dollars from investors and Dante DeMiro took approximately $10 million in his fraudulent scheme (Peterson Kramer, Bukhoff, 2012).…

    • 768 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    Betting Vs Bookies

    • 1205 Words
    • 5 Pages

    When you gamble online, you are betting against a bookie. They produce odds that show how much you will be paid if you win. These odds are manipulated to ensure the bookie cannot lose, and they may even use the odds to affect which bets you place, since unlike investing, you have a choice on how much you place on each bet. When you invest, you do not have a choice of how much a share costs, though you do have a choice around how many of them you buy. When you buy shares, you are not putting your money against a bookie, which is a point in your favor.…

    • 1205 Words
    • 5 Pages
    Improved Essays
  • Great Essays

    Hegemony In Society

    • 1622 Words
    • 7 Pages

    There are so many instances of people getting exploited by investors on Wall Street; but why does this happen? Because of this hegemony society has created where the smartest people go to Wall Street, it is believed we can trust these people with our money. In Ho’s writing, Princeton graduate Chris Logan points out that “the three qualities of success on Wall Street are to be smart, hardworking, and aggressive” (Ho 166) These are traits that put people 's money at risk. Quite simply, it is the investor 's job to make the most money out of their clients.…

    • 1622 Words
    • 7 Pages
    Great Essays
  • Improved Essays

    Many hedge funds make concentrated bets in order to make huge returns. For example, George Soros shorted some ten billion dollars’ worth of sterling in 1992. John Paulson made several billion dollars betting on the subprime. On the contrary, Dalio said “Given that I’m never sure, I don’t want to have any concentrated bets.” Many hedge funds deviated from their investment styles and become overconfident after a successful big bet (For example John Paulson ).…

    • 1339 Words
    • 6 Pages
    Improved Essays
  • Brilliant Essays

    After a fall in 2010, Morrison has maintained a consistent sales revenue to capital employed level up until 2012. In comparison with Tesco, Morrison has a higher value; which suggests that the firm is using their assets more productively than Tesco to generate sales revenue. This is also reflected in Morrison’s lower trade payables rate and inventory turnover period. Morrison’s value is not too high to suggest overtrading on their assets (Atrill and McLaney, 2011). This ratio helps ordinary shareholders and banks monitor the efficiency in the use of their funds.…

    • 3632 Words
    • 15 Pages
    Brilliant Essays
  • Improved Essays

    Raymond Dalio Case Study

    • 1210 Words
    • 5 Pages

    So in conclusion we see that Hedge Funds have an amount of power in the world and United States economy…

    • 1210 Words
    • 5 Pages
    Improved Essays
  • Superior Essays

    Merrill Lynch: A Career

    • 935 Words
    • 4 Pages

    On June 8th, 2015, I started my job at Merrill Lynch. When working men and women think about their career, they would think that two and a half years is just a hiccup. To me though, it has been my entire working career. A career, it is hard to think that I already have a career at 21 years old. I truly believe that Merrill Lynch will be my home for a very long time.…

    • 935 Words
    • 4 Pages
    Superior Essays
  • Superior Essays

    The goal of maximizing shareholder wealth means that the goal of the company. Is fundamental to business goals to create value for the shareholders of the company are also owners of the company. The relationship between financial decision - making, risk and return. Financial decisions – making is money or not invest in certain securities.…

    • 1663 Words
    • 7 Pages
    Superior Essays
  • Improved Essays

    Derivatives e.g swaps and futures are mainly used to assist CAO (China Aviation Oil) in enhancing their procurement proficiency and hedging tool in the beginning to reduce the risk in their daily trading activities. Eventually derivatives are used in speculative trading without having a proper risk management environment in place in hope to gain more profit from the positive market movement. When the trading was done at the start, Mr Chen Juilin the managing director and CEO of the company, was able to foresee the market condition hence allowing him to profit from there. As time passes Mr Chen thought he understood the market well enough and he moved on to making several speculative contracts with the bank, when the market movements did not…

    • 1077 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    2.1 Introduction In this chapter, previous literature concerns with the determinants of foreign currency hedging will be discussed and assessed. Theories for the determinants of foreign currency hedging can be evaluated from two aspects: the level of foreign exchange exposure and how firm’s value will be affected; what kinds of characteristics for the firm influence its decisions for hedging. I will discuss the determinants of foreign currency hedging from this two points of view in the following sections. Multinational corporations (MNCs) involve in foreign currency hedging activities because of their foreign exposures will have an impact on its expected cash flows.…

    • 1361 Words
    • 5 Pages
    Improved Essays

Related Topics