Hedge Fund Overview
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- 1. Hedge FundsHedge Funds
- 2. AgendaAgenda Hedge Funds - An Overview.Hedge Funds - An Overview. Overview of Hedge Fund administration.Overview of Hedge Fund administration. About IFS.About IFS.
- 3. Hedge Fund OverviewHedge Fund Overview
- 4. Hedge Funds- OverviewHedge Funds- Overview A Hedge Fund can be defined as an investmentA Hedge Fund can be defined as an investment strategy that employs both long and shortstrategy that employs both long and short positions, uses leverage and derivatives, and ispositions, uses leverage and derivatives, and is much less dependent on market direction thanmuch less dependent on market direction than long-only investments such as stocks, bondslong-only investments such as stocks, bonds and mutual funds. Hedge funds are privateand mutual funds. Hedge funds are private pooled investment limited partnerships which fallpooled investment limited partnerships which fall outside many of the rules and regulationsoutside many of the rules and regulations governing mutual funds.governing mutual funds.
- 5. Hedge Funds- Overview Contd.Hedge Funds- Overview Contd. Hedge funds are limited liability partnerships,Hedge funds are limited liability partnerships, largely unregulated, that are open to thelargely unregulated, that are open to the relatively wealthy.relatively wealthy. First hedge fund set up in 1949 in United StatesFirst hedge fund set up in 1949 in United States EligibilityEligibility - Investors must have a net worth- Investors must have a net worth of $1 million or higher or an annual income inof $1 million or higher or an annual income in excess of $200,000 for the past two years. Itexcess of $200,000 for the past two years. It includes qualified individuals, institutions,includes qualified individuals, institutions, endowments, fund of funds, family offices, andendowments, fund of funds, family offices, and pension fundspension funds
- 6. Hedge Funds- Overview Contd.Hedge Funds- Overview Contd. Minimum investmentMinimum investment -- There is no standard as to hedgeThere is no standard as to hedge fund minimum investments. it varies from $250,000 to $1mmfund minimum investments. it varies from $250,000 to $1mm depending on General Partnersdepending on General Partners No. of InvestorsNo. of Investors -- LLimited to 499 investors ("limited partners") who can invest in any one fund FeesFees Management fees 1-2% of Asset and Incentive fees 20-Management fees 1-2% of Asset and Incentive fees 20- 25% of profit earned25% of profit earned SEC Registration requirementsSEC Registration requirements From 1 February,From 1 February, 2006 onwards2006 onwards Onshore Funds- >$25mm asset under managementOnshore Funds- >$25mm asset under management Offshore Funds - > 14 clients residents in United StatesOffshore Funds - > 14 clients residents in United States
- 7. Types of Hedge FundsTypes of Hedge Funds Onshore FundsOnshore Funds Onshore funds are investment vehicles which are set up in United states/UKOnshore funds are investment vehicles which are set up in United states/UK Offshore FundsOffshore Funds Offshore hedge funds are investment vehicles organized in offshoreOffshore hedge funds are investment vehicles organized in offshore financial centers.financial centers. Management of hedge funds is often conducted in or near major international financial centers such as London and New York, but the actual fund is registered in an OFC. These types of funds offer securities primarily to non-U.S. investors and toThese types of funds offer securities primarily to non-U.S. investors and to U.S. tax-exempt investors.U.S. tax-exempt investors. The advantage of an offshore hedge fund is that the investors in the fundThe advantage of an offshore hedge fund is that the investors in the fund generally are not subject to United States taxation, SEC regulations,generally are not subject to United States taxation, SEC regulations, withholding taxeswithholding taxes The most widely used places are Bermuda, the Cayman Islands, Guernsey,The most widely used places are Bermuda, the Cayman Islands, Guernsey, Hong Kong, the Isle of Man, Jersey, Luxembourg, the British Virgin IslandsHong Kong, the Isle of Man, Jersey, Luxembourg, the British Virgin Islands and Dublin. These low-tax areas provide a welcoming environment forand Dublin. These low-tax areas provide a welcoming environment for hedge funds.hedge funds.
- 8. Global Growth ProspectsGlobal Growth Prospects Inflow of institutional capital.Inflow of institutional capital. Increased investments from institutional investors like PensionIncreased investments from institutional investors like Pension funds,Universities,Endowments,Charitable Organisation Etc.funds,Universities,Endowments,Charitable Organisation Etc. Share of US Institutional investors in Hedge Funds to rise to 50% ofShare of US Institutional investors in Hedge Funds to rise to 50% of hedge fund capital flow by 2008 from the just 28% in 2004.hedge fund capital flow by 2008 from the just 28% in 2004. Current total Hedge fund asset under managementCurrent total Hedge fund asset under management estimated at $1.13 trillion.estimated at $1.13 trillion. Expected annualized growth in hedge fund asset of 15%Expected annualized growth in hedge fund asset of 15% between 2006-2008.between 2006-2008. Number of hedge funds to touch 9000 by Mar 2007 fromNumber of hedge funds to touch 9000 by Mar 2007 from around 8000 funds as on Mar 2005around 8000 funds as on Mar 2005..
- 9. Top Hedge funds - USTop Hedge funds - US Largest hedge fundsLargest hedge funds USUS S.No.S.No. PlayerPlayer $Bn$Bn 11 Farallon Capital ManagementFarallon Capital Management 12.512.5 22 Bridgewater AssociatesBridgewater Associates 11.511.5 33 Goldman Sachs Asset ManagementGoldman Sachs Asset Management 11.311.3 44 Citadel Investment GroupCitadel Investment Group 11.011.0 55 Caxton AssociatesCaxton Associates 10.810.8
- 10. Top Hedge funds - UKTop Hedge funds - UK Largest hedge funds - UKLargest hedge funds - UK Sl.No.Sl.No. PlayerPlayer $Bn$Bn 11 GLG PartnersGLG Partners 11.211.2 22 Man InvestmentsMan Investments 11.111.1 33 Vega Asset ManagementVega Asset Management 11.111.1 44 Barclays Global InvestorsBarclays Global Investors 8.18.1 55 Brevan Howard Asset ManagementBrevan Howard Asset Management 7.47.4
- 11. Largest global fund of fundsLargest global fund of funds Largest global fund of funds (end-2005)Largest global fund of funds (end-2005) S.No.S.No. PlayerPlayer $Bn$Bn 11 Man InvestmentsMan Investments 39.039.0 22 UBS Global Asset ManagementUBS Global Asset Management A&QA&Q 30.730.7 33 GAM Multi-ManagerGAM Multi-Manager 25.025.0 44 Permal GroupPermal Group 23.123.1 55 HSBC RepublicHSBC Republic 18.818.8
- 12. Hedge Fund Administration- AnHedge Fund Administration- An OverviewOverview
- 13. ObjectiveObjective Understanding the role of Hedge FundUnderstanding the role of Hedge Fund AdministratorsAdministrators Services offeredServices offered Global PresenceGlobal Presence
- 14. Hedge Fund AdministratorHedge Fund Administrator A hedge fund administrator services to hedgeA hedge fund administrator services to hedge fund clients and investors; supports themfund clients and investors; supports them administratively and operationally; and providesadministratively and operationally; and provides financial, tax and compliance reporting. Thisfinancial, tax and compliance reporting. This includes audits and tax coordination; complianceincludes audits and tax coordination; compliance services such as anti-money laundering andservices such as anti-money laundering and know-your-client procedures required by theknow-your-client procedures required by the Patriot Act, and middle office services.Patriot Act, and middle office services.
- 15. Role of Hedge Fund AdministratorRole of Hedge Fund Administrator Perform critical, non-core administrative and operationalPerform critical, non-core administrative and operational functions for hedge funds.functions for hedge funds. Reduce the operating cost of the fund and investmentReduce the operating cost of the fund and investment adviser.adviser. Relieve fund manager of necessary and time consumingRelieve fund manager of necessary and time consuming operational duties.operational duties. Provide independent third-party verification andProvide independent third-party verification and reassurance of the fund to investors.reassurance of the fund to investors.
- 16. Role of Hedge Fund Administrator-Role of Hedge Fund Administrator- contcont.. Provide custodial services to safeguard theProvide custodial services to safeguard the investor monies and the assets of the fund.investor monies and the assets of the fund. Provide access to accounting, finance andProvide access to accounting, finance and operations professionals and systems.operations professionals and systems. In short, a hedge fund administrator providesIn short, a hedge fund administrator provides support services to investors and business.support services to investors and business.
- 17. Types of services provided to hedgeTypes of services provided to hedge fundsfunds
- 18. Structure of a Hedge FundStructure of a Hedge Fund
- 19. Trade Cycle Deal + NOE Trade Allocation Settlement / Delivery Instruction Trade Details Confirmation / Affirmation Affirmed Confirm Affirmed Confirm Settlement Authorization Settlement Confirmation Investment Manager Broker Dealer ExchangeCustodianDepository Trade Instructions
- 20. Thank YouThank You