hedge funds
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Hedge funds are private investment vehicles that aim to generate absolute returns regardless of market conditions. The hedge fund industry has grown significantly from $39 billion in AUM in 1990 to $2.5 trillion in 2013. Most hedge fund investors are large institutions that allocate a portion of their portfolio to hedge funds to reduce volatility and enhance returns. There are over 10,000 hedge funds employing a variety of strategies such as long/short equity, event driven, macro, and relative value. Top performing hedge fund managers have generated annual returns upwards of 20-30% over long periods of time.
hedge funds
- 1. Hedge Funds as a business
- 2. Disclaimer This presentation is for information purposes only and does not constitute an offer to purchase securities or an interest in any Hedge Fund. Nothing herein should be construed as investment advice, an opinion regarding the appropriateness or suitability of any investment, a recommendation or an offer or solicitation for the purchase or sale of any security or the Funds, nor an inducement or solicitation of any type. No representation is made that the objectives or goals of the Funds will be met or that any particular investment that they make will be profitable or will not incur losses. Presenter shall have no liability for investment decisions based upon, or the results obtained from, the information provided herein. Examples of trades are provided for illustrative purposes only and results may not be replicated. Past performance is no guarantee of future results. Investing in hedge funds and trading in commodities is very risky; investors may lose their entire investment. Performance information is generated by the Fund’s administrator and audited annually. 2
- 3. Executive Summary Hedge fund is private investment vehicle, a business: -Audited, legally protected structure with alignment of interests (SPV) -Objective is to offer absolute return ~20%/year, regardless of market -World has ~9000 funds -In 1990 AUM = $39B -2013 asset class AUM stands at $2,5T -New capital/reinvestments 40%/60% -65% of investors are institutions (pensions etc) -On average, HFs decrease volatility by 10% 3
- 4. General Information about HFs -1923, first notice, Graham, “share in the business” -1949, second notice, Alfred Jones, real hedge -Allignment of interests between investors and manager -Goal is to make 15-20% per year (~1,5% per month) for 20 years Net worth ~$11B Fund made $15B in 2007 This year Fund up ~30% Fund lost $1B June 2007 Donated >$1B - children Net worth ~$100M Net worth ~$23B Made $1B shorting GBP, THB, JPY Married Sep13 third time… Fund lost $6,5B, nat gas Banned from trading Charged $30M fine 4
- 5. Hedge Fund Assets, Flows, Count 5
- 6. Typical organizational structure of HF 6
- 7. Risk-adjusted return Expected return Er E Expected risk (vol, std.dev) 7
- 8. What is an asset (class)? Liquidity? Transparency? Hidden risk? Expected Return, % Money can be allocated to generate cashflow… into an asset Private Equity Hedge Funds Public Equity Fixed Income Real Estate Bank Account Scalability? Expected Risk, % 8
- 9. Pyramid of yearly returns $2 500 000 000 000 ~10 000 funds 9
- 10. Pyramid of yearly returns $2 500 000 000 000 ~10 000 funds 10
- 11. Pyramid of yearly returns $2 500 000 000 000 ~10 000 funds 11
- 12. Pyramid of yearly returns $2 500 000 000 000 ~10 000 funds Around 5000 funds are born and die every 3 years 12
- 13. Hedge Fund Strategies Event Driven waiting for catalyst to put capital to work Long/Short. Value. Activist. buying “good” companies and selling “bad” ones Emerging/Frontier Markets 13
- 14. Hedge Fund Strategies Relative Value M&A deals, arbitrage, convertibles etc Global Macro Interest rates currencies derivatives Commodity Trading Advisors (CTA) Real goods trading 14
- 15. Different strategies in one opportunity 15
- 16. Successful business managers Carl Icahn AUM: $24B CAGR: 24% Daniel Loeb AUM: $14B CAGR: 23% Richard Chilton AUM: $9B CAGR: 14% William Ackman AUM: $13B CAGR: 24% David Tepper AUM: $18B CAGR: 30% David Einhorn AUM: $5B CAGR: 25% Ray Dalio AUM: $14B CAGR: 20% Leon Black AUM: $9B CAGR: 32% Steven Cohen AUM: $7B CAGR: 27% 16
- 18. Distribution by strategy. Q4 2013 $2 500 000 000 000 ~10 000 funds 18
- 19. Investor’s base $1,7T $2 500 000 000 000 ~10 000 funds 19
- 20. Returns are enhanced by HF allocation 20
- 21. Correlation 21
- 22. Comparison to other assets ~9% ~6% ~4% 22
- 23. Classical assets historical performance 23
- 24. GS HF “VIP” LIST OUTPERFORMANCE vs S&P500 13% 13% 11% 11% 9% 8% 8% 7% 6% 5% 5% 9% 5% 4% 3% 1% 1% 1% -1% 0% -2% -3% -5% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* outperfomance mean ex08 *as of 31 November
- 25. GS HF CONCENTRATED LIST OUTPERFORMANCE 50% 45% 40% 30% 18% 20% 11% 10% 6% 3% 0% 0% -10% -13% -20% -30% -22% 2007 outperfomance 2008 2009 mean 2010 2011 2012 2013* *as of 31 November
- 26. Big Trend1: Farm Land 26
- 27. % of total investments in fixed assets Big Trend2: Software 27
- 28. Big Trend3: U.S. Reindustrialization 28
- 29. Priceline (booking.com) buys Kayak Price per share (euro) 30 25 20 15 10 5 28/04/2010 28/04/2011 28/04/2012 Amadeus Holdings 28/04/2013
- 30. Shareholders file lawsuit against management 10 Price per share ($) 9 8 7 6 5 4 3 2 1 0 26/09/2013 26/10/2013 Violin Memory 26/11/2013
- 31. Hedge Funds: Conclusions World Standard of competition Creating “Benchmark” prices Exclusive ability to “join” hot business models Fast-fail type Outperforming long term by ~5% The most dynamic business. Ever. 31
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