Académique Documents
Professionnel Documents
Culture Documents
Management
First Canadian Edition
• Basic Concepts
• Alternative Assets
• Limited Partnership
• The Development
• Significant development in professional asset
management industry over the past 20 years was
emergence of global market for hedge fund
investing
• Hedge fund investing traces back to 1949
• Structured as a partnership structure with an
incentive fee for superior performance
• Equity-Based Strategies
• Long-short equity:
• Managers attempt to identify misvalued stocks and take
long positions in undervalued ones and short positions in
the overvalued ones
• Equity market neutral:
• limit the overall volatility exposure of the fund by taking
offsetting risk positions on the long and short side
• might also involve adopting derivative positions
• Arbitrage-Based Strategies
• Fixed-income arbitrage:
• Returns are generated by taking advantage of bond
pricing disparities caused by changing market events,
investor preferences, or fluctuations in fixed-income
market
• Convertible arbitrage:
• Seeks to profit from disparities in relationship between
prices for convertible bonds and underlying common
stock
• Arbitrage-Based Strategies
• Merger (risk) arbitrage:
• Returns are dependent upon magnitude of spread on
merger transactions, which are directly related to the
likelihood of the deal
• Opportunistic Strategies
• High yield and distressed:
• Invest in risky bonds
• Global macro
• Broad class seeks to profit from changes in global
economies
• Managed futures
• Using long and short positions in variety of futures
contracts
• Special situations
• Events like bankruptcies, spinoffs
• Multiple strategies
• Fund of funds:
• Invest in a number of funds so as to achieve well-
diversified allocation to the hedge fund investment space
• Organization
• Three Subcategories
•Venture Capital
• Seed
• Early stage
• Later stage
•Buyouts
•Special Situations
• Distressed Debt
• Mezzanine Financing
Copyright © 2010 by Nelson Education Ltd. 17-38
Private Equity
• The Investment Process
• Zero-stage capital: Using personal savings and
bank loans
• Venture capital: Seek to obtain additional seed
and early-stage funding they need to advance
their idea to the next level; in exchange, the
venture capital firm receives an equity stake in
the company
• Venture capital firm will ultimately want to
liquidate equity holdings in order to create a
return on investment
• Buyout
• IPO Copyright © 2010 by Nelson Education Ltd. 17-39
Private Equity
• Agency Conflict
• Regulation in the Asset Management
Industry
• Complex interaction between provincial and
federal laws
• Goal is to ensure portfolio managers act in best
interests of their investors