Investing in hedge funds
Investing in hedge funds - will try to tell about the analysis and selection of hedge funds to invest in the best and most reliable of them. However, I would like to draw Your attention to the fact that in spite of the practical orientation of the material, for most of You this lesson is more theory, lifting Your investment knowledge even one step, rather than a guide to action.
The fact is that the vast majority of real hedge funds are abroad, in the United States and offshore zones, are focused on the English-speaking audience and to invest in them directly, as well as to conduct their serious analysis, You, as a minimum, you need a good knowledge of the English language. If You are in a perfect command of English, you are fully able to apply stated in this lesson material in practice. If not, do not worry! This lesson will serve You excellent theoretical basis, and on the practical applications of knowledge of investing in hedge funds You will learn in the following articles, where it will go on investing in the Bank-managed mutual funds, which are, in fact, the domestic àíàëîãîì.Èòàê, the first step of the investor wishing to invest their capitals in this tool, will be to study the maximum amount of available funds, in terms of their consistency, reliability and yields. Using search engines, You find in finished form or write independently collecting information bit by bit, a database of more and more funds. For normal and comprehensive analysis of this database should include about 5000 funds, if more, the better.
Of course, that examine closely, the insight into the investment strategy, structure, management, etc. so vast quantities of funds, for the private investor will be an impossible task. For the ranking of funds and drop-out rates already at the first stage of the analysis of the notoriously hard-to-us funds, recommend to conduct the primary analysis on a number of simple, but the primary criteria, such as " the period of existence of the Fund, the size of the assets, expected return and the risks involved. This will allow You to throw out a list of those funds that initially You are not satisfied and delve into more serious analysis of already on order from the funds, which will remain in the list after dropping out.
The first criterion drop-out can be the period of existence of the Fund. Funds have been in operation for less than a year, we are clearly not suitable, as it is not yet had time to accumulate enough statistical material, on which we can build our further analysis. Foundations for more than three years, as a rule, begin to demonstrate significant decline in yield, or already closed to new investors - us they too are not suitable. Therefore, the best will be left in Your list of only those from the funds, which are confirmed by the data about their work for a period of two to three years. All the rest is eliminated.
The second criterion by which we chase our list, is the size of the assets, which are under the control of one or the other Fund. There is no sense to deny that very many successful funds started their work virtually from scratch. And all the same, the funds under management of less than $ 40-50 million can be attributed to the funds with relatively high operating risks. If You their îòñååòå from Your list already at this stage, you will do very carefully and wisely. In any case, for a conservative investor 40-50 million dollars in assets of the Fund, it is the minimum limit.
The third criterion, and perhaps, the most interesting and important for any investor, would be expected annual return of the Fund. It is clear that this criterion will be determined in the first place of Your own investment strategy, however, if You remember, the purpose of including hedge funds in Your portfolio, it is not so much high, how much stable yield, as well as the diversification of the portfolio as a whole.
Looking at the past yield past yield and studying the expected returns, looking for a very high percentage. Let the interest rate will be lower but the results - stable. Comparing the funds in the framework of this criterion, remember so well known truth, according to which outsiders rarely chosen as leaders. Therefore, the drop is not this stage of the selection process the 30-50% of the funds, which in Your list gives the worst figures in those or other strategies.
The last of the primary selection criteria will be the criterion of potential risks. About the risks we still talk in more detail, but already now it is necessary to mention the classic rule of the analysis of risks, which States that «the best way to analyze the risks of hedge-Fund - a study his behavior in the past crisis situations».
And under crisis situations in this context should be understood not so much the crisis situation on the market as a whole, as the crisis situation for the specific strategy, which uses the analyzed Fund. This is one of the most difficult stages of the analysis, because You need to delve into it, for what strategy he works and what kind of macroeconomic parameters have on the strategy of the Fund, the greatest influence. This is a very important moment! Shoving the whole list of the funds for the first three of the proposed criteria, the remaining funds You obligatory have to study deeply and thoroughly, realizing what exactly strategies use control remaining in Your list of funds. Analysis of information about the Fund and the analysis of its operational risks, is called «due diligence» procedure without literate of which talk about investing in hedge funds is simply meaningless.
The independence of the results of the Fund on the behavior of the market, is the most important positive development in its work. The Fund, with no failures in the profitability in the periods of crisis on the market, obviously managed by professionals. If no failures yield in moments of crisis, it means that the Fund Manager is able to easily and quickly adapt to changing market situation.
Having dealt with the primary selection, before moving on to more serious procedure «due diligence» remaining in Your list of funds, already at this stage will not prevent to conduct the analysis of correlation of the remaining funds among themselves. It is necessary to create a balanced and sufficiently diversified portfolio of hedge funds. You must agree, what is the sense to include in its portfolio of those funds, which are very strictly correlated between themselves and behave the same way in similar market situations?
All you need to do in this case, it is only compare the graphics yield of funds for a certain period of time with each other! If, for example, one of the You hedge funds engaged in currency arbitrage, and the other futures trading, but the graphics yield both of them go in one and the same vein, it is very tough êîððåëèðóÿ among themselves, there is no sense to include in Your portfolio both of them. If, for example, one Fund specializes in ìàêðîèíâåñòèðîâàíèè, and the other on options trading and the correlation between them is rather low, these funds can very well complement each other in Your portfolio.
Here it is possible to conduct an analysis of sensitivity of the funds and to a variety of market factors. Agree, very useful to have an idea of how the growth or decrease of one or the other of the index will be accompanied by a rise or fall in the value of funds in Your portfolio. As professionals say investing in hedge funds: «the combination of the portfolio funds with a sensitivity to different factors may be even more reliable guarantee of their low correlation in the future, rather than the fact of their low correlation in the past.»
And the last on this item analysis - because of correlation can vary over time, remember to watch them in the future, have already invested money in those or other funds. However, this is so clear. For conducting the annual re-analysis, You Willy-nilly will have to rerun the funds on the list of Your tests.
