Hedge Funds Feature Returns Different From Those Of Mutual Funds

Our textbook defines an agency problem as a “conflict between the goals of a firm’s owners and its managers” (Megginson & Smart, 2009). It then defines agency costs as dollar costs that arise because of this conflict. In the corporate structure, stockholders are the owners of the firm, and they elect a board of directors to oversee the firm and help protect their investment. The board then hires the right corporate managers to run the firm with the goal of maximizing the wealth of the

Pension funds, institutional investors and endowments have been vocal regarding exorbitant hedge fund fee structures for years. Until recently, investors have been content to complain loudly, while quietly pocketing the gains hedge funds generated.

They are also similar to mutual funds in that they are pooled investment vehicles that accept investors’ money and generally invest it on a collective basis. However, hedge funds are not

Hedge funds are investment vehicles that explicitly pursue absolute returns on their underlying investments. Hedge Fund incorporate to any absolute return fund investing within the financial markets (stocks, bonds, commodities, currencies, derivatives, etc) and/or applying non-traditional portfolio management techniques including, but not restricted to, shorting, leveraging, arbitrage, swaps, etc. Hedge funds can invest in any number of strategies. Hedge fund managers typically invest money of their own in the fund they manage, which serves to align their interests with

Hedge funds originated in the late 1940s, and they have been causing problems in the US economy since then. Due to the fact that hedge funds basically function on loopholes in American laws, it simply creates a way for the rich to become richer and the poor to become poorer. An example of this is the way that hedge funds are structured to avoid regulation by the Securities and Exchange Commission (SEC), the “federal regulator of securities markets” (Investopedia) in the United States. Hedge funds are able to exempt themselves from the Investment Company Act of 1940, an act put in place by the SEC that imposes limits on the use of certain investment techniques, by having “less than 100 investors” (Fichtner 8) or making sure that investors are

My experience at Villanova, both as a research fellow and a student was formative of my fascination with investments, hedge funds, and mutual funds. My original interest sparked while working with Dr. Velthuis and performing literature reviews on effects of corporate activism on stock prices, and size effects on hedge fund returns. Since then, classes in Portfolio Theory and

There is a long list of papers in the literature focusing on the relationship between managers ability to hedge and firms risk. As such, these studies, among others, have documented a number of techniques that executives use to hedge their undiversified portfolios, such as the use of low-cost collars

§  When the hedge fund is optimally combined with the baseline portfolio, the improvement in the Sharpe measure will be determined by its information ratio:

There is a certain air of secrecy surrounding the hedge fund industry that makes investing in these vehicles a scary endeavor for some. As hedge funds are not regulated to the same extent as mutual funds, many firms choose to limit the disclosure of their operations and holdings. Because of this lack of transparency combined with media criticism, many myths and fallacies regarding the industry have surfaced. Although this lack of transparency may leave investors less informed and more susceptible to risk when investing in a hedge fund, it also allows for higher returns that cannot be achieved by more traditional investment vehicles. The benefits of low disclosure may outweigh the costs for certain investors, but the level of transparency

We will extend our findings about undercapitalization in Table 4 based on our conclusions from Table 3. From Table 3, we know that there are 222 undercapitalized live hedge funds, and it consists only 8.1% of all the live funds. From this we can reach the conclusion that only a small fraction of live hedge funds are undercapitalized. Most of the live hedge funds (about 91.9%) can stay out of the risk of being undercapitalized. While the undercapitalized ratio for dead funds is 12.3%, so more dead funds are undercapitalized compared with the ratio of live funds. Since the ratio of undercapitalization plays an important role in determining the performance of a hedge fund, we will take a further look into the details of undercapitalization in Table 4. We list a number of variables that would usually have influence on the cap ratio. By comparing the different variable values under the category of adequately capitalized funds and under-capitalized funds, we can determine the key elements that would usually influence the cap ratio of a hedge fund. Table 4 also illustrates the comparative characteristics between live and dead hedge funds. We can specify the characteristics in the following points. First, the mean of the net asset for the undercapitalized live funds is $88.4 million and the corresponding value for the capitalized funds is $206.1 million. The huge difference between these two values means a positive condition in the capital adequacy of the live funds. More live hedge

Both hedge funds and index funds stem from the idea of an independent mutual fund, but their potential to succeed is dependent upon the economy performing well.

1. The returns used in this research are returns of mutual funds. So, we can only evaluate the stock-picking skill of all managers of funds, not skill of individual fund manager. 2. The returns used in this research are not the net returns, which already deducts management fee. So, there is possibility that the underperformed fund is caused by ineffective management of fund not from lack of manager‟s skill.

The agency conflict refers to a problem in which there is a conflict of interest between the two parties involved. Regarding corporate finance, an agency conflict is when the managers of a firm make decisions motivated by self-interest rather than focusing on the interest of shareholders. Evidently, the interests of the manager and the shareholders may be different. Companies usually offer incentives such as rewards, compensation, and threatening to fire or take over, in order to make sure that managers are making decisions according to the best interest of shareholders.

Let 's take a closer look at those last two subjects by answering these questions: What exactly are hedge funds? How do they work? Who is eligible to invest in them? And finally, why have these funds been grabbing headlines during the recent Wall Street crisis?

Hedge Funds are actively managed instruments with flexible mandates that allow fund managers to invest opportunistically in long and short positions across all asset classes.