Hedge Fund Course
Preface
Business bookstores contain many different books on the general topic of hedge funds. Most of these books are written for potential investors.These books focus primarily on the investment characteristics of hedge funds, admittedly the most important topic related to this investment alternative.Some of these texts are little more than marketing devices designed to encourage greater use of hedge funds in investor portfolios. An investor considering an investment in a hedge fund for the first time should read one or two of these books before making an investment.
To reach a large market, these investment books are mostly written at avery simple level. They generally do not presume any prior knowledge of investments, finance, mathematical methods, accounting, or the law. The authors develop a survey that usually leaves the reader less than an expert after reading the text. After getting a general background, the investor will likely need to hire some combination of investment professionals, tax advisers, accountants, and lawyers before making an investment.
A small number of books have been written for professionals. Usually, these books are not sold commercially. Instead, they are distributed by law firms and accountants to their customers, and most readers cannot get copies of them. Even if available, these books, while they are extremely valuable to professionals, should provide little value to most readers because of the highly technical treatment of narrow topics.
The academic research on hedge funds is accumulating. The ambitious student can read a survey of the important papers concerning hedge funds and develop a good understanding of this important investment product. But few people have the time or background to learn about hedge funds from academic papers.
Some books have been written for the entrepreneur who wants to start a hedge fund. I wrote one of these for John Wiley & Sons a couple of years ago and have discovered that there is considerable demand for a book that bridges the gap between the nontechnical texts written for mass appeal and the technical books and academic papers. Although the previous book was a bit more technical than most others on the market, it also included information needed by hedge fund venture capitalists.
This book serves to bridge another gap. It provides an extensive survey of the hedge fund management business. The course book format is written at a more technical level than most books. Although no specific prior knowledge of statistics, accounting, or finance is required, the reader will find that a background in these fields will be helpful.
This book is written for students in a classroom or students in their own self-study program. It could be the basis for a class in a graduate business school or the curriculum of training programs created for new employees in banks and brokerage firms. This book is also perfect for someone who works for a hedge fund or hopes to get a job with a hedge fund and needs to learn the essential facts about this important industry. Finally, lawyers and accountants who serve the hedge fund industry can learn about the business of their hedge fund customers.
The course book format is designed to let readers quickly learn as much or as little as they require. Readers can read chapters in any order and may skip chapters or parts of chapters. Short chapters describe the essential facts on a particular topic. Questions follow each chapter, and answers are at the back of the book. The questions are not designed to test the reader’s understanding of the reading. Instead, the questions and answers delve more deeply into the topics reviewed in the text. The question sections contain most of the quantitative material of the book, so readers comfortable with the mathematics should be careful not to skip this valuable bonus material.
TOPICS INCLUDED
Chapter 1—Introduction
The first chapter provides a primer on the hedge fund industry. It explains how a hedge fund differs from other investment products, the growth of the industry, and basic vocabulary and operation of hedge funds.
Chapter 2—Types of Hedge Funds
Most of the thousands of hedge funds resemble one of a handful of strategies. This chapter describes the most popular strategies that comprise most of the hedge fund assets under management.
Chapter 3—Types of Hedge Fund Investors
Although individuals began investing in hedge funds before most types of institutional investors, today nearly all types of investors invest in hedge funds. The needs and wants of individual investors differ greatly from those of pension funds and endowments. This chapter describes the most
important groups of hedge fund investors.
Chapter 4—Hedge Fund Investment Techniques
Certain investment techniques have been developed in broker-dealers or private equity funds and fit well into hedge funds. This chapter describes investment techniques outside the domain of the traditional portfolio manager.
Chapter 5—Hedge Fund Business Models
Hedge funds and hedge fund managers are organized as corporations, partnerships, and limited liability corporations to get maximum tax advantages and limited liability for investors. Offshore funds combine several structures to comply with U.S. and offshore regulations.
Chapter 6—Hedge Fund Leverage
This chapter describes the many techniques used by hedge funds that allow a hedge fund to carry positions larger than the hedge fund capital. The chapter also describes how hedge funds can create short positions to implement trading strategies and control risk.
Chapter 7—Performance Measurement
Hedge fund investors closely monitor hedge fund performance. Investors have developed a collection of tools to measure performance and risk. Hedge funds share some of these tools with traditional asset managers, but they also have methods designed for leveraged portfolios.
Chapter 8—Hedge Fund Legislation and Regulation
Anyone who thinks a hedge fund is not affected by rules and regulations hasn’t read a risk disclosure document. Although most securities laws contain exemptions that allow hedge funds to escape some of the burdens of regulation, the exemptions create complications as well.
Chapter 9—Accounting
This chapter describes the accounting requirements unique to hedge funds. Hedge funds pose all the challenges typical of portfolio accounting. Hedge funds create additional challenges because they carry short positions, may finance their long positions, and may turn over their positions rapidly.
Chapter 10—Hedge Fund Taxation
Tax reporting is one of the most complicated topics affecting hedge fund investors. Taxes have a powerful impact on the after-tax return of investors yet tax reporting is one of the least-discussed topics affecting hedge fund investors.
Chapter 11—Risk Management and Hedge Funds
Risk management is more than risk measurement, but measurement is the first step. Some hedge funds take more risks than traditional portfolio managers and hedge funds almost always take different risks than traditional portfolio managers. Risk measurements provide managers, investors, and creditors with valuable insights into the nature of hedge fund positions.
Chapter 12—Marketing Hedge Funds
Regulations define how hedge fund managers can market their funds. A
specialized industry has evolved to help managers raise money.
Chapter 13—Derivatives and Hedge Funds
One of the latest developments in hedge fund investing involves investing indirectly into hedge funds through derivative products. These new structures offer several potential advantages over direct hedge fund investing.
Chapter 14—Conclusions
This chapter provides a review of the state of the hedge fund industry and provides insight into the future of the hedge fund marketplace.
posted on 2008-07-13 16:06
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