The “Fundamentals of Hedge Fund Investing” by William J.Crerend is a good start-up package for individuals who want to know about the Hedge fund industry. It introduces to the reader about the compliance norms, overview various strategies, their characteristics and how one can monitor and evaluate their performance with respect to peers.
What Are Hedge Funds Why Invest In them
Here the author discusses why individual or corporations invest in hedge funds. He also explains about how the hedge funds works, its types and how to adopt different strategies to beat the market consistently.
The key points focussed are the following
· Timing with which you go for a strategies makes the difference
· Beating the market requires active churning of your portfolio
Quantitative and Qualitative Characteristics of Specific Hedge Fund Strategies
In the quantitative part the author depicts the characteristics of various hedge fund strategies (relative value, event driven, equity hedge, short selling, and global asset allocators) using the correlation and drawdowns against the U.S stocks.
In the qualitative part he explains the following:
· Historical risk return characteristics of the hedge fund strategies
· How one should view the parameters like shorting, leverage, liquidity, partnership and monitoring which can make a lot of difference when one is picking a fund
Who Manages and Who Invests in Them
Here the author clearly emphasis on some of the vital characteristics which a fund manager should possess. He also tabulates the percentagewise source of assets classifications among the participants(High networth Individuals, FOF, Pension Funds, Endowment Foundations, Brokers, Insurers, Investment banks ,Brokers and others including corporates)
The key here is to understand the following
· How to assess the risk return profile
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How to invest in hedge funds
The author explains about the components like fee structure, legal structure, business considerations, partnership agreement, and tax and capacity constraints by providing an example of operational mid-size hedge funds.
The reader can understand the three H’s of Hedge Funds
· How much is the minimum investment
· How much he should be paying as management fee
· How much he would be taxed on his investment
Evaluating Hedge Funds
The author explains about the performance and the descriptive information issues which would be useful for a reader to evaluate a specific strategies, thereby enabling to come up with an effective decision.
This chapter helps the reader to
· Understand the relation between correlation coefficent and quartile rankings of the managers
· Understand concepts like hedge ratio, downside risk leverage, shorting and drawdowns which would be influential in evaluating strategies
Monitoring Hedge Funds
In this Chapter the author introduces the reader some of the prerequisites which are vital in monitoring the hedge funds and assess one’s exposure. This would definitely be an eye opener for the readers as it discusses how one can compare the performance of hedge funds with their peers and how can one go about the re-evaluation strategies.
Hedge Fund Benchmarks
It’s all about indexation their use and limitations. The author compares the performance of the various hedge fund strategies (relative value, event driven, equity hedge, short selling, and global asset allocators) against the EACM 100 INDEX and explains the quantitative characteristics (risk/return, standard deviation, correlations) of the same over the period of years.
Future of Institutional Investment in Hedge Funds
Empirical results are presented about the composition of investments which the hedge funds would have and it has also depicted about the demand for the alternative investments (Venture capital, Hedge funds, and Buyout funds) by the corporates, public, endowment and pension funds.
