Hedge Fund Management Technique the essay

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2.3: Theme I: This study's first theme defines hedge funds and presents a synopsis of their history.

2.4: Theme 2: Ways hedge funds compare to mutual funds are noted in this section, this study's second theme.

2.5: Theme 3: segment denotes techniques hedge funds utilise in investing.

2.6: Theme 4: A number of ways rising and falling markets impact hedge funds, this section's theme links to the thesis statement for this thesis/Capstone.

2.7: Analysis: The analysis section presents a number of pertinent points retrieved from the reviewed literature.


3.1: Introduction: This final chapter's introduction reviews the original study aim and objectives presented at the start of this thesis/Capstone, relating to hedge funds techniques. This section also recounts this study's thesis statement.

3.2: Discussion: During this segment, this researcher relates final considerations regarding hedge funds techniques, cross-referencing several points the reviewed literature noted. This researcher also reiterates the validity of this study's thesis statement and notes the outcome/s of the Aim and Objectives initially projected for this thesis/Capstone.

3.3: Conclusion/s: In this segment, this researcher recounts the original research aim/research questions this thesis/Capstone purports, and provides contentions regarding the contemporary, controversial challenging concepts connected to hedge funds techniques.

3.4: Recommendations: Along with recommendations for future study, this researcher recounts considerations (in hindsight) of that may have enhanced this thesis/Capstone.

APPENDICES: This section presents additional material/s that complement

Information related in the body of this thesis/Capstone.

1.5: Aim and Objectives


Confirm the validity of this study's thesis statement, which contends that regardless of whether promising hedge funds fail or succeed, investors utilising hedge fund management techniques, in fact, may "profit" from both rising and falling markets.

Objective 1:

Research and define hedge funds.

Objective 2:

Compare hedge funds to mutual funds.

Objective 3:

Present techniques hedge funds utilise.

Objective 4:

Investigate how rising and falling markets impact hedge funds.

During the next section of this thesis/Capstone, this researcher relates information relating to hedge funds that reportedly "could make money [even] if stock, bond, commodity, and currency prices fell."

In addition, this next chapter also explores considerations contributing to the contention the introductory quote for this thesis/Capstone purports: "...even the most promising hedge fund can fail,"

to either ultimately support or contradict this study's thesis statement.



"There is something fascinating about science.

One gets such wholesale returns of conjecture out of such a trifling investment of fact."

- Mark Twain [Samuel Langhorne Clemens]

(1835 -- 1910), U.S. author.

2.1: Introduction

Hedge funds investment techniques, this researcher contends, do not constitute an "exact science." This segment of this thesis/Capstone, albeit, utilises the fascinating "science" of investing time into accessing and analyzing previous research relating to hedge funds techniques. The return for the investment in this study not only presents a select assortment of samplings of controversial conjectures relating to hedge funds investment techniques, but in fact, relates a myriad of facts.

For this thesis/Capstone, as noted in this study's introduction, this researcher investigates information relating to hedge funds techniques. The Literature Research Methodology constitutes the method utilized for this study effort, which explores and analyzes the following four primary themes:

Hedge funds and a synopsis of their history;

How hedge funds compare to mutual funds;

Techniques hedge funds utilise in investing;

Numerous ways rising and falling markets impact hedge funds.

2.2: Study Method

The Literature Review Methodology, the method used to develop this thesis/Capstone, consists of a methodical review of peer reviewed journals, along with other pertinent published and print and electronic bibliographies, articles, books, websites, and reports. English constitutes the language utilized in this search, with the majority of sources published from 2002 to the present. Searches conducted within these limits used key words and phrases, including, but not limited to:

Automated Trading Systems


Hedge funds

Hedge funds techniques


Investment Company Act

Mutual funds

Risk management

James Simons

Technical Analysis Chart Reading



In addition to using ERIC and Google for web searches, this researcher primarily utilized two online databases, Highbeam, which reports it hosts more than 3500 credible publications, and Questia, reportedly the worlds' largest online library, to access this study's s literary sources. English constitutes the language utilized for this study's searches, albeit, information from a number of countries is considered. This researcher initially assessed more than 40 sources to, in the end; yield 20 sources, deemed relevant enough to support the thesis statement of this thesis/Capstone, analyzing hedge funds techniques.

2.3: Hedge Funds and History Synopsis

"Hedge funds are not new - just notorious."

As noted earlier in this study, during the late 1940s, Alfred W. Jones reportedly started hedge funds, which "have always attracted investors who wanted higher returns than traditional mutual funds typically offer."

This initial U.S. phenomenon took off during the late 1970s, when floating exchange rates and volatile interest-rate movements transformed capital markets. As technology and electronic trading increased in speed and sophistication, hedge funds gained momentum. During 2006, hedge funds totaled approximately 9,000 funds and are reportedly spreading. The FSA estimated that only 325 hedge funds were based in the UK in 2006.

In the past, most investors considered hedge funds to be out of their reach. Today, however, according to the March 3, 2008 issue of Investment Adviser, hedge funds are becoming more accessible. Recent instability in global equity markets increased the need for investment ideas that protect capital in complex markets, yet still provide upside to investors. Once deemed the rich people's reserve, a number of innovative investment vehicles reportedly make hedge funds increasingly available and ensure transparency, liquidity and regulation.

Despite the proliferation of hedge funds, as the total number soared from 880 to over 6,000 in the past decade (noted to 2001) hedge funds remains an exclusive club, according to Julie Schlosser in a Fortune Magazine article, "How to Be Your Own Hedge Fund Arm yourself with these basic hedging techniques, and you can protect yourself the way the pros do. - September 16, 2002." Schlosser reports that when it comes to risky investment techniques, hedge funds, free from SEC rules governing mutual funds "can still make money. If stocks go on a run, it seems that quick-acting hedge funds are there to capture the gains. When the market spirals downward, they clean up on short positions."

Data, according to Schlosser, indicates the obvious hedge fund prowess does not constitute a myth. The average equity mutual fund, Morningstar purports was down 12.6% during 2001, while, after accounting for fees, the Van U.S. Hedge Fund Index rose 5.6%. Schlosser notes that during 2001, hedge fund assets soared 34%; $144 billion, to a total of $563 billion. "The minimum investment typically is $250,000 or more, and fund managers usually take a hefty 20% cut of profits on top of management fees, which generally run 1% of assets."

Even though hedge funds present impressive returns, they frequently engage in death-defying leverage acts, which make the accompanying risk exposure incompatible for numerous investors; particularly individuals who count on the promise their investment portfolio will provide the bulk of their retirement savings.

Hedge funds, originally established off-shore, were considered one of the highest powered innovations in the 1980s. "These investment funds set their chosen investment instruments against Treasury bonds or similar securities to try to protect their value while capitalizing on a rise in their value."

Some hedge funds experienced extraordinary success. George Soros, a Hungarian native, one primary fund manager increased his fame after he bet sterling would dramatically drop during a 1992 European currency crisis. When the pound fell, Soros reportedly made more than $1 billion in profit.

Since the bear market in stocks began in 2001, hedge funds grew 20% per year. During 2005, a total of 8,500 such funds controlled $1.0 trillion, an increase from $400 billion in 2000 and $100 billion during 1995. Bush

contends hedge funds' particular investment techniques are currently, as in the past, generally run by a close-knit band of traders. Traditionally, fewer than a hundred individuals back the hedge funds traders, albeit, these investors readily trust a massive amount of money into the hedge funds traders' hands.

The following figures (***) depict three samplings of Hedge Funds averages.

Figure ***: HFN Aggregate Averages (adapted)

Figure ***: HFN Regional Averages (adapted)

Figure ***: HFN Single Strategies Average (adapted)

2.4: Hedge Funds Compared to Mutual Funds

The Investment Company Act, considered a contemporary cornerstone of mutual fund regulation, regulates the structure and operation of mutual funds. In addition to requiring prospective fund investors to obtain a prospectus possessing specific information about the fund's management, holdings, fees and expenses, and performance, the 1933 Act requires funds to:

"safeguard their portfolio securities,

"forward price their securities, and "keep detailed books and records."

Unlike mutual funds, hedge funds do not have to register with the SEC. Hedge funds, albeit, issue securities in "private offerings" that are not registered with the SEC under…[continue]

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