Global Hedge Fund Research Articles

Hedge Fund Management in India

Abstract: The study evaluates the performance of Indian Hedge Funds in comparison to the hedge fund of Asia, Emerging market, Australia, China, Japan and global hedge funds. If also examines the interrelationship between the return of Indian Hedge Funds in comparison to the return from Indian Equity market. The data were analysed by using annualized standard deviation, Sharpe ratio, correlation, ANOVA, and regression analysis. The study revealed that performance of Indian Hedge Funds is significantly behind the performance of the above listed seven hedge funds regions. It is also observed that the exists a positive correlation between Indian Hedge Funds and Indian Equity Market.

The Credit Suisse CoCo wipeout: Facts, misperceptions, and lessons for financial regulation

The Credit Suisse CoCo wipeout: Facts, misperceptions, and lessons for financial regulation

Comparing Hedge Funds: Highest Return Strategy

Since 1997, the hedge fund industry has grown at a compounded annual growth rate of 16.07%, resulting in a 26-fold increase from its original value to its present value of $3.1 trillion Assets Under Management. This study researched the varying investment strategies used by hedge funds to determine the strategy that provides the highest returns for its investors. From the previous literature, the study identified Long/Short Equity, Global Macro, Arbitrage, Event Driven, and Cross-Asset Multi-Strategy as viable and relevant investment approaches. Using hedge fund index data from Bloomberg, Hedge Fund Research, Eureka Hedge, Barclay’s, and Credit Suisse, returns for each respective strategy were collected and compared against the Bloomberg Global Hedge Fund (BHEDGE) Index and the S&P 500 Index. Alpha adjusted returns for each strategy were later calculated and plotted against the average weighted returns of each individual strategy. The results of this study show that the L/S Equity strategy provided the highest returns for its investors. Specifically, only the L/S Equity strategy outperformed the BHEDGE Index by a narrow margin, while all other strategies provided negative alpha figures. All hedge fund strategies outperformed the overall equity market on a year-to-date basis, however, provided negative alpha returns when compared to the S&P 500 1-Year market gains. This deficit between hedge funds and the overall equity market can be attributed to the COVID-19 pandemic and its inflationary effects through low interest rates, market stimulus packs, and an increased money supply.

GIPS and Hedge Funds: Is Compliance a Certification Agent?

This study examines a sample of global hedge funds and focuses on analyzing characteristics consistently predictive of being GIPS compliant. Hedge fund data are merged with the CFA Institute’s list of GIPS-compliant firms. The authors find that smaller funds, with less experienced managers and those not denominated in US currency, are more likely to be compliant. They also find that firms with a strong internal control mechanism, defined as having one of the big four accounting firms as an auditor, are more likely to claim compliance. Turning to some core elements of the investor–fund relationship, they find performance fees are lower in firms claiming compliance, but past performance is insignificantly different. Collectively, the results suggest that GIPS compliance is useful to smaller and riskier firms that want to display confidence and transparency in their performance, thus supporting the notion that compliance is an additional certification agent. There is also some evidence to suggest a benefit to the investor in lower fees. <b>Key Findings</b> ▪ The minority number of hedge funds that chose to be compliant prior to the revised GIPS standards of 2020 are typically relatively smaller, have less-experienced managers, and are based in non-US currency. ▪ Compliant firms have smaller performance fees, resulting in a lower overall fee structure, compared to their noncompliant counterparts. ▪ Results are consistent with the notion that funds that chose compliance are those that could benefit from the additional certification it could provide.

An Explainable Machine Learning Framework for Cross-Sectional Forecast-Based Fund Selection

Since the 1990’s the global hedge fund industry has seen a rapid expansion. Its growing presence in financial markets ranging from equity, fixed income and derivative markets has inextricably linked it to the broader financial industry, with larger funds effectively acting as a market makers and liquidity providers in many markets. For both academics and practitioners, the space has established itself as a key area of research given the vast heterogeneity of investment styles and the high mutability of the industry. In this thesis, a cross sectional fund selection approach which builds upon the paradigm of explainable machine learning is proposed in a fully systematic setting. Four fund performance metrics, Sharpe and Sortino ratios, fund alpha and its t-statistic, are used as the ranking and selection metric, at investable inter-regime forecast horizons of 24 and 36 months. We find that quintile portfolios constructed from machine learning and deep learning approaches outperform linear models and benchmark portfolios constructed exclusively based on historical realizations of the forecast metric, in terms of absolute and risk-adjusted performance. We find that the extreme quintile portfolios realize a high (resp. low) value of the performance metric employed as forecast metric in model training. We find forecasting on the Sortino ratio to yield the most consistent overall performance, and find particular benefit in employing machine learning methods for bottom quintile fund selection (consistent identification of under-performers) in the case of forecasting on fund alpha. Explainability, achieved via the use of SHAP values further serves the purpose of outlining feature importance both at the aggregate and the individual fund level. At the aggregate level, all methods agree on a subset of statistically consistent predictors across investment style and forecast horizon; with discernible relevance of predictors constructed from interactions of fund returns with nowcasters, and management quality indicators. This consistency enables a discretionary fund selection process to be complemented by model forecasts and SHAP value-based feature importance delineations. There is thus evidence that proposed approach may be valuable for a discretionary fund manager looking to incorporate machine learning based signals into their selection process.

Monetary policy after the crisis: A threat to hedge funds' alphas?

We examine the effects of US monetary policy announcements during and after the Great Financial Crisis on the average abnormal returns (the “alpha”) of the hedge fund industry as a whole and of a range of hedge strategy indices. We apply a variety of tests of increasing sophistication including simple event studies, formal tests for breaks, and Markov switching models. The event studies show that both the overall index and long-short equity and fixed income arbitrage hedge strategies were systematically affected by unexpected monetary policy announcements, while other strategies appear to have been less impacted. Formal break point tests show that for all strategies as well as the overall index, there is evidence of five breakpoints. For the overall index and most of the sub-indices, many of the endogenously determined breaks closely match a list of policy surprise dates that have been already singled out because they had strongly affected financial markets in general. Especially for the long-short equity, fixed income arbitrage, dedicated short-bias, and global macro hedge funds, there is a significant tendency for estimated alphas to decline over time, following policy surprises, while we find no clear-cut evidence of systematic risk beta timing skills.

Monetary Policy after the Crisis: Threat or Opportunity to Hedge Funds' Alphas?

We examine the effects of U.S. monetary policy announcements during and after the Great Financial Crisis on the average abnormal returns (the “alpha”) of the hedge fund industry as a whole and of a range of hedge strategy indices. We apply a variety of tests of increasing sophistication including simple event studies, formal tests for breaks, and Markov switching models. The event studies show that both the overall index and longshort equity and fixed income arbitrage hedge strategies were systematically affected by unexpected monetary policy announcements while other strategies appear to have been less impacted. Formal break point tests show that for all but one strategies as well as the overall index, there is evidence of five breakpoints. For the overall index and most of the sub-indices many of the endogenously determined breaks closely match a list of policy surprise dates that have been already singled out because they had strongly affected financial markets in general. Especially for the long-short equity, fixed income arbitrage, dedicated short-bias, and global macro hedge funds, there is a significant tendency for estimated alphas decline over time, following policy surprises.

Fintech, Payments Innovation, and the Acquisition of Worldpay

This case uses the Vantiv, a US credit-card-processing company, acquisition of Worldpay, Britain's largest payments processor, to discuss broader themes in the payment space. Payments are a crucial function of financial institutions because of their sheer volume and revenue potential. Fintech has enabled more ways for financial institutions and consumers to make payments and has the potential for significant disruption. The material in the case allows for an exploration of the payment ecosystem, including acquirers, issuers, aggregators, e-commerce, m-commerce, gateways, processors, point-of-sale providers, card networks, mobile payment processors, and mobile wallets. The ecosystem is complex and the competition seems to only be rising.Without doubt, the imperative of globalization has forced a focus on the importance of payments. In particular, growth in emerging markets—such as India, which in 2016 rendered some of its high-value currency banknotes useless in an effort to foster electronic payments—pointed to the need to capture the global shift away from cash and checks toward credit, debit, account-to-account online, and other means of digital payment. Yet there are risks to financial globalization and payments, including security, changing regulatory environments, and unpredictable technology shifts. The case begins in mid-2017 when Vantiv acquired Worldpay, for $10.4 billion, in a deal that valued the merged entity at $28.8 billion. The acquisition was expected to achieve several goals. One was to combine Vantiv's integrated payment technology with Worldpay's global merchant base. In particular, Vantiv would have access to Worldpay's non-US merchants to process payments, and Worldpay would increase its access to the US market. Combined as Worldpay, the two businesses would scale up in size and functionality to gain global market share, accelerate long-term growth by 3%, generate more than $200 million in synergy savings, and integrate technology to innovate. As an omnicommerce payments provider, Worldpay was expected to process more than $1.5 trillion through 40 billion transactions (assuming performance similar to that in fiscal year 2016). The deal appeared poised to be a payments powerhouse. At the same time, the business unit of JPMorgan Chase & Co. that handled card transactions backed out of bidding on Worldpay. Had it found the price tag too high, or was it something else? Excerpt UVA-F-1829 May 31, 2018 Fintech, Payments Innovation, and the Acquisition of Worldpay As a financial analyst working in a global hedge fund in London, Monica Pearson was busy with a recent acquisition. Pearson worked on due diligence specializing in the financial-services and fintech industries. Financial markets paid a few highly specialized folks like Pearson very well to stay on top of recent mergers. . . .

수익률 시계열의 자기상관 (Autocorrelation) 현상하에서 한국 적격투자자의 Liquid Alternative 글로벌헤지펀드 투자전략

수익률 시계열의 자기상관 (Autocorrelation) 현상하에서 한국 적격투자자의 Liquid Alternative 글로벌헤지펀드 투자전략

The Global Hedge Fund Industry: Structure, Strategies and Growth

The principal aim of this study is to provide the structure, organization, growth and risk-return profile of global hedge fund industry. In particular, the objective of the study is to introduce the evolution of the global hedge fund industry and some of the most common hedge fund investment strategies used by the fund managers. Also, the present study intends to provide some current statistics of the global hedge fund industry pre- and post-global crisis of 2008.

Institutional interruption: a relational account of the growth and decline of product heterogeneity in the global hedge fund industry

Institutional interruption: a relational account of the growth and decline of product heterogeneity in the global hedge fund industry

The anatomy of the Cayman Islands offshore financial center: Anglo-America, Japan, and the role of hedge funds

ABSTRACTThe Cayman Islands is a key node in contemporary global finance, yet it is severely under-researched. This paper compiles the first ‘anatomy’ of the Cayman offshore financial center (OFC), utilizing all sources of publicly available data about the three main segments: banking, direct investment, and portfolio investment. The analysis is performed both diachronically to see when large inflows occurred and geographically to determine what role certain countries play in different segments. This dissection of the Cayman OFC shows that the United States is the largest counterparty in all segments with Japan playing an important role too. In fact, when excluding long-term Treasuries, Cayman is the largest holder of US securities in the world. Hedge funds are the main factor for this strong Cayman-US link. About 60% of global hedge fund assets are legally domiciled in Cayman – an extraordinary spatial concentration in such a tiny jurisdiction. A novel contribution to the analysis of the Cayman OFC is the introduction of the Anglo-America/Anglosphere approach. This approach provides one plausible explanation for the unparalleled rise of the Cayman OFC by seeing this jurisdiction as one node in an Anglo-American triangle together with the USA and the UK, Cayman's sovereign power.

The Canadian Hedge Fund Industry: Performance and Market Timing

AbstractWe analyze the risk and return characteristics of Canadian hedge funds based on a comprehensive database we compiled. We find that Canadian hedge funds have higher risk‐adjusted performance and different distributional characteristics relative to the global hedge fund indices. We investigate market timing by Canadian hedge funds and find that they do not time the Canadian or global stock and bond markets, but hedge funds in the Managed Futures strategy group time the commodity market. These results are robust to parameter instability and structural changes in the model. We also illustrate the impact of using local and global risk factors to analyze the performance of local investment firms.

“We do what we must, and call it by the best names”: Can deliberate names offset the consequences of organizational atypicality?

Research summary: This article focuses on organizational naming as a strategic choice organizations make to overcome liabilities of atypicality. We argue that, in markets presenting an “illegitimacy discount,” atypical organizations may use deliberate names—names that communicate the market categories to which organizations claim membership—to offset the consequences of atypicality. Using data from the global hedge fund industry, we show that atypical hedge funds are more likely than typical funds to have deliberate names. Importantly, the selection of a deliberate name is economically significant. First, funds with deliberate names grow faster than funds without deliberate names, especially among atypical funds. Second, while atypicality heightened the likelihood of failure during the recent financial crisis—even after controlling for fund performance—having a deliberate name mitigated this effect.Managerial summary: Differentiation is a core element of many organizations' competitive advantage. Nevertheless, as differentiation implies being atypical among one's competitors, differentiation strategies can also lead to an “illegitimacy discount” whereby differentiators are at risk of being misunderstood, miscategorized, and ignored by consumers. Here we investigate how atypical hedge funds—funds that differentiate themselves from their competitors by investing in notably unique ways—use names to offset the potential consequences associated with the “illegitimacy discount.” Our analysis of more than 12,000 hedge funds over 12 years highlighted a trend whereby atypical hedge funds were more likely to choose names that unambiguously associated them with a known investment strategy—for instance, choosing the name “Apex Global Macro Capital” over simply “Apex Capital.” Importantly, name selection proved to be economically significant. For example, among atypical hedge funds, those with unambiguous names grew faster than those without. Furthermore, while being atypical increased the level of disinvestment during the recent financial crisis, having an unambiguous name reversed this effect. Organizational names play an important communication role with consumers, which, while highly symbolic, may also help resolve the dual organizational need to both conform to consumer expectations and differentiate from market competitors. Copyright © 2015 John Wiley &amp; Sons, Ltd.

Can hedge funds time global equity markets? Evidence from emerging markets

This paper examines the ability of global hedge funds to time a particularly volatile asset class — emerging market equities. In particular, we study whether or not these funds can either time emerging markets as a whole, or time their exposures to different regions. Using both pooled and calendar-time approaches, we generally find no evidence of overall timing ability. However, we do find some evidence of period-specific timing ability during the financial crisis and subsequent recovery.

Performance Related Compensation Factors in the Activity of Global Hedge Funds

Performance related compensation (skewed toward the attainment of predefined target rates) is a critical incentive attracting and retaining talent by the hedge fund industry. The hedge fund community is still recovering from the recent global and regional crises that have put hedge fund managers’ skills to a veritable test of ingenuity and endurance. Hedge funds’ basic emoluments did not substantially deviate from those of other forms of institutional investment where compensation mechanisms are more conservative. Prolonged failure to reap performance related benefits is likely to alter the business philosophies and allocation policies of most hedge funds, especially in light of mounting operating and competitive pressures. In particular, scale related factors might stifle innovation embodied by hedge fund startups.

Transparency in the Extractive Industries: Time to Ask for More

The quest for transparency spans countries, policymakers, NGOs, and industries.Transparency can be defined as disclosing to the public, in a timely and reliable manner, information that governments and/or corporations previously con-sidered confidential. Recent examples include the Carbon Disclosure Project,the Aarhus convention on access to environmental information, the Cartagena Protocol on Biosafety and its provisions on global genetically modified organism flows, and a wide array of financial information (e.g., in the G8 declaration of Lough Erne in 2013). Stemming from the “right to know,”advocates from NGOs and development organizations view transparency as a cure for corruption and a benefit for democratic accountability; transparency should lead to stakeholder empowerment and improve legitimacy, learning, investment certainty, and better governance. In this article I look at the efforts to establish financial transparency as a norm for the extractive sector. This sector is important because its activities are accompanied by a high level of corruption, especially in resource-rich developing countries. I show that those efforts are not enough and there is good evidence to demand more. I argue that such transparency norms should be extended to environmental pressures in order to facilitate progress on the circular economy and resource efficiency. My conclusions point at synergies between knowledge generation across financial and environmental information.

Tales from the Downside: Risk Reduction Strategies

High market volatility has driven the development of investment strategies advertised to deliver reduced risk without reduced return. The “low-volatility” equity anomaly (low-risk stocks may have similar or greater returns than high-risk stocks) is best exploited by investors as part of the toolkit of a broader active strategy. “Tail risk” strategies can provide protection in extreme market events, but their persistent negative carry (ongoing cost) make them unappealing to most investors. Managed futures and global macro hedge fund strategies have desirable downside risk protection characteristics combined with positive returns and alpha for skilled investors. Investors can increase their downside protection by allocating part of their hedge fund or opportunistic asset category to managed futures and global macro strategies.

Do Hedge Funds Outperform Stocks and Bonds?

Hedge funds' extensive use of derivatives, short-selling, and leverage and their dynamic trading strategies create significant non-normalities in their return distributions. Hence, the traditional performance measures fail to provide an accurate characterization of the relative strength of hedge fund portfolios. This paper uses the utility-based nonparametric approach of Levy and Leshno (2002) and the utility-based parametric measure of Goetzmann, Ingersoll, Spiegel, and Welch (2007) to determine which hedge fund strategies outperform the U.S. equity and/or bond markets. The results from the realized and simulated return distributions indicate that the Long/Short Equity Hedge and Emerging Markets hedge fund strategies outperform the U.S. equity market, and the Long/Short Equity Hedge, Multi-strategy, Managed Futures, and Global Macro hedge fund strategies dominate the U.S. Treasury market.

Producing trust, knowledge and expertise in financial markets: The global hedge fund industry ‘re-presents’ itself

The global financial crisis increased critique towards hedge funds, raising the possibility of unprecedented global regulation which threatened to put some hedge funds out of business. In the face of threats to operational freedom and market advantage, hedge funds responded by engaging in a debate about their future. This study explores discursive strategies employed by the Alternative Investment Management Association, the global hedge fund trade body, to produce trust in the hedge fund industry and its institutions. A set of defined and overlapping trust practices are introduced as a means of analysing power and trust production in the ongoing discursive shifts of global systems.