Hedge funds
Hedge funds ( English hedge fund , of to hedge [ hɛdʒ "secure"] for; in Switzerland: hedge funds ) are in the Finance actively managed mutual funds , whose business purpose in alternative investments is and therefore higher financial risks go down as a classic investment funds.
General
Hedge funds form a very heterogeneous group within investment funds. You pursue different investment strategies and can implement them with a wide range of financial instruments . These include financial instruments the use of which other investment funds are prohibited by law: arbitrage techniques , derivatives , short sales and leverage through borrowing .
Regardless of their name, which actually indicates risk hedging strategies (a hedge is used to hedge against risk ), hedge funds are highly risky for investors . Some hedge funds try to generate a higher return on equity through debt financing (leverage effect). They belong to the riskiest asset class ( total loss possible) and should only be purchased by risk- taking investors ( risk class E). Hedge funds are particularly risk-taking investment funds that are offered to a small group of wealthy investors. However, they do not want to mislead with their name, but operate a kind of hedging in the portfolio management of their fund assets in which they hold around half of their fund assets as a long position (potential for appreciation ) and about the other half as a short position (potential for depreciation) ; Short Selling ). This hedging gave them their name. You operate a kind of risk compensation , but you expose part of your fund assets to a high financial risk due to the unforeseeable future market development .
history
Alfred Winslow Jones was considered the first fund manager who (a "hedged portfolio" in March 1949 english portfolio hedged ) put together. The “Private Partnership AW Jones & Co.” called itself “Hedged Fund” - and not “Hedge Fund”. He bought shares with a view of bull and sold (as short sale ) shares with a bear market - trend , which in theory, the market risk off and against shocks would have to prepare any kind. Jones added two more elements to the classic fund concept, namely leverage and short selling.
George Soros founded the "Double Eagle Fund" in 1969, a forerunner of the Quantum Fund that was established in the same year . In September 1992 he speculated against the British pound on the basis of the global macro strategy , in which the fund set US $ 10 billion via a currency swap on a devaluation of the pound. Within a week, the fund turned this into a profit of US $ 1 billion. This speculation ultimately led to the withdrawal of the pound from the European monetary system on September 16, 1992 ( Black Wednesday ).
The hedge fund Long-Term Capital Management (LTCM) of John Meriwether was founded in March 1994 and speculated on a narrowing of the spread between the swap rate and US Treasury bonds , but this failed. A rescue operation by major international banks in September 1998 could not prevent the liquidation of the LTCM between December 1999 and January 2000. Only since January 2004 has there been a regulation in the Investment Act for hedge funds in Germany , from July 2013 the KAGB adopted the standards of Directive 2011/61 / EU on the managers of alternative investment funds and is now the only legal basis for hedge funds.
Legal issues
According to the legal definition in Section 283 (1) of the KAGB, hedge funds are general open domestic special AIFs in accordance with Section 282 of the KAGB, whose investment conditions also include at least the use of considerable leverage or the sale of assets for the joint account of investors who do not belong to the AIF at the time of the transaction ( short sale ). According to Art. 111 of the Delegated Regulation (EU) No. 231/2013 , a “considerable scope” of leverage can be assumed if the exposure of an AIF is three times its net asset value. Closed hedge funds are not permitted.
The investment conditions of hedge funds must also contain information on whether the assets are held with a custodian or a prime broker . Primebroker is a credit institution , investment firm or other economic entity that is subject to regulatory oversight and constant surveillance and that offers professional investors services , primarily to finance or conduct transactions in financial instruments as a counterparty , and which may also provide other services such as clearing and settlement of transactions , Custody services , securities lending and individually adapted technologies and facilities for operational support ( Section 1 (19) No. 30 KAGB). In addition, section 227 of the KAGB applies to the redemption of units or shares , with the proviso that, in deviation from section 227 (2) of the KAGB, unit or share redemptions for hedge funds up to 40 calendar days before the respective redemption date on which the unit or share price is also determined are to be declared by means of an irrevocable declaration of return to the AIF capital management company .
Since hedge funds belong to the so-called “special AIF”, the units may not be acquired by private investors in accordance with Section 1 (6) of the KAGB ; they are only available for semi-professional and professional investors.
Hedge fund
A fund of hedge funds (also English funds of Fund ) consists of several Sub together, follow the turn of a hedge fund strategies. Fund of hedge funds invest exclusively in other single hedge funds (sub-funds). Fund of hedge funds are hedge funds in accordance with Section 225 (1) KAGB that invest in units or shares of target funds (subfunds). Target funds are hedge funds in accordance with Section 283 of the KAGB or EU AIF or foreign AIFs whose investment policy is comparable to the requirements of Section 283 (1) KAGB for hedge funds. Leverages with the exception of borrowing in accordance with Section 199 of the KAGB and short sales may not be carried out with fund of hedge funds. According to Section 225 (4) KAGB, you may not invest more than 20% of the value of a fund of funds in a single target fund. No further capital investments are made at the level of the fund of funds, the operational business only runs at the level of the subfunds. It is one of the open funds, but investors can only buy and sell for a limited time - usually once a month.
Seat and legal form
Many hedge funds are registered in offshore financial centers ; However, the AIFM Directive stipulates that the fund domicile is irrelevant for fund managers based in the European Union . In this case, the hedge fund is still subject to regulation. The reasons for choosing an offshore financial center are, on the one hand, of a tax nature ( low-tax country ), but on the other hand, there are also fewer restrictions imposed by the respective capital market legislation with regard to the financial instruments permitted in the funds. The British Financial Market Authority FCA reported in its June 2015 Hedge Fund Survey that 69 percent of hedge funds are in the Cayman Islands , 10 percent in Ireland , 8 percent in the US , 5 percent in the British Virgin Islands and the remaining 9 percent in the Bahamas , Guernsey and are based in Luxembourg .
Anglo-Saxon hedge funds are more like closed-end funds in some ways . Investors acquire shares in these companies. The legal form corresponds to an English limited partnership (LP) or English limited liability partnership (LLP) of a German KG or an English limited liability company of a GmbH . There are one or more hedge fund managers in the LLP who are liable with their private and business assets, and investors who buy shares in these companies. Often the official seat of such a hedge fund is a tax haven (75 percent in the Cayman Islands ), and the fund manager is located in a financial center (e.g. London, New York).
Fund manager
The success of a hedge fund depends to a large extent on the skill of the fund manager and the quality of the mathematical / econometric models he uses , which for example are based on the Black-Scholes model . The fund manager's approach is similar to a bet due to the high degree of risk and speculation . The inclusion of borrowing up to a multiple of the equity capital is common to increase even more the return (leverage effect). Fund managers are expected to participate in the fund and, if necessary, have personal liability. In return, the managers are paid very well, the 2/20 rule is often spoken of. This includes a 2 percent management fee (of the fund volume) and a 20 percent profit sharing.
Hedge fund strategies
The investment strategies of hedge funds can be differentiated as follows with regard to market risk .
| Relative value | Event driven | Directional |
|---|---|---|
| Convertible arbitrage | Risk arbitrage | Global Macro |
| Fixed Income Arbitrage | Distressed securities | Emerging markets |
| Equity Market Neutral |
The strategy "Relative Value" ( German relative valuation ) is the market risk is comparatively low, it increases (for "Event Driven" German event driven ) and is highest in "Directional" ( German a certain direction tracing ).
The first hedge fund strategy (market-neutral strategy) comes from Alfred Winslow Jones and was intended to be an instrument to protect against adversity in the case of interest rate and currency risks. Jones' idea was not only to profit in boom phases in interest and currency markets, but also to make profits when interest and exchange rates fell. With this, Jones founded one of the first hedge fund strategies, namely the one to take up debt capital (leverage effect, margin trading ) and short selling for the purchase and sale of currencies. He sold borrowed shares and speculated that he could buy them back for less before the end of the loan period.
A group of new strategies ( global macro strategy ) were developed by George Soros and Jim Rogers with their hedge funds of the series Quantum Funds . Using new financial instruments, they speculated in new areas such as the foreign exchange market , interest rate levels , commodity and stock markets . Since Jones' first hedge fund strategy, hedge fund strategies have evolved and grown significantly. Hedge funds belong to the "alternative forms of investment". Hedge funds use the multitude of trading objects and trading strategies . Borrowed capital is raised because it is expected to generate a return that exceeds the cost of capital . The functioning of the leverage is based on a lower interest rate on the debt than the gain on the expected return. The leverage effect can, besides by backing a fraction of the exposure for exchange traded futures ( Futures ), in other hedge fund strategies are built only by borrowing. A small amount of outside capital is offset by a high volume of the traded base value . A high use of debt capital with a high leverage effect is common in the strategy of market-neutral arbitrage and global macro strategies .
Today, hedge funds are independent investment instruments with very different strategies and risk profiles. What they all have in common is the aspiration to generate profits in both rising and falling markets.
As offshore projects, hedge funds are only slightly regulated and their investment decisions have little market transparency , which can lead fund managers to manipulate the stated profitability . Bollen and Pool (2009) have examined this hypothesis statistically and have shown that fund managers can reduce losses, especially when valuing illiquid investments, even if the profits are only very weak. This agrees with the greater risk aversion of investors claimed by Kahnemann and Tversky .
economic aspects
The fund management of a hedge fund hardly has to observe any legal restrictions in the EU member states . In contrast to the usual investment funds, arbitrage and speculation , derivatives without an underlying transaction , short sales, and foreign exchange , real estate or commodities as underlying assets are also permitted . They are also allowed to invest in corporate acquisitions and distressed assets . The “Global Macro Strategy” takes advantage of international macroeconomic business cycles and the related market prices and market developments on financial markets . Because of these high-risk transactions, private investors are not allowed to acquire hedge funds in the EU member states; they therefore belong to the worst asset class and - because of the particular risk appetite of their professional or semi-professional investors - to the highest risk class.
Hedge funds seek no relative - in a benchmark (eg stock index ) aligned - return , but rather an absolute return ( English absolute return ). For this purpose, income should be achieved or at least the capital should be preserved regardless of the market development . Hedge funds have very different risk / reward ratios , ranging from those of an equity or bond fund to extremely high values. In the past, risk-adjusted returns - expressed in the Sharpe ratio - were higher than traditional funds. The risk of total loss of hedge fund certificates is therefore very high.
The fund assets of hedge funds or fund of funds are neither tied special assets (pursuant to Section 1 (10) KAGB) nor tied investment funds (pursuant to Section 1 (1) KAGB) as is the case with traditional investment funds. Rather, it represents the free assets of the hedge fund, which are matched by certificates as refinancing , but which as hedge fund certificates are not investment certificates , but belong to the bonds . Issuer of the hedge fund certificates can be the hedge funds themselves, but also third parties can emit certificates and a total return swap the certificate with the underlying link economical. The investors are therefore not co-owners , but rather unsecured creditors of the hedge fund, fund of funds or a third party issuer. In the event of insolvency , investors are not entitled to any segregation rights as with traditional investment funds.
statistics
At the end of 2018, hedge funds had a volume of around $ 3.1 trillion worldwide :
| year | Assets under management in billion US $ |
|---|---|
| 2006 | 1,696 |
| 2007 | 2,295 |
| 2008 | 1,450 |
| 2009 | 1,367 |
| 2010 | 1,403 |
| 2011 | 1,408 |
| 2012 | 1,482 |
| 2013 | 1,884 |
| 2014 | 2,025 |
| 2015 | 2,219 |
| 2016 | 2,367 |
| 2017 | 2,906 |
| 2018 | 3,065 |
In 2000, hedge funds with assets under management of US $ 263 billion were relatively insignificant, and have grown steadily ever since. The hedge fund sector was one of the fastest growing investment products after the turn of the millennium. The number of globally active hedge funds can only be estimated, as can the assets invested in them. In March 2009, the data service provider Hedge Fund Research (HFR) announced that a total of 1,471 hedge funds were liquidated worldwide as a result of the financial crisis in 2008, affecting around 15 percent of the entire hedge fund market as well as some funds of funds. We know the names here Drake Management , an asset management former BlackRock -Staff and Peloton Partners , a division of former Goldman-Sachs -Bankern. According to Morgan Stanley, assets under management are said to have fallen in 2008 by 37 percent to USD 1.2 trillion . What is striking is the significant decline in wealth during the financial crisis from 2007 , when in 2008 their wealth only made up 63% of the value in 2007 and refuted the claim that they were resistant to the crisis. This was followed by a recovery, and since 2013 high growth rates have been recorded again.
International regulation
G8 and G20 countries
At the meeting of the G7 finance ministers in Essen in February 2007, they agreed on a joint declaration according to which hedge funds will be monitored more closely in the future. The aim of the G-7 is to identify possible risks from hedge fund activities and thus to prevent global financial crises and domino effects in fund bankruptcies. According to the agency, a voluntary code of conduct and a kind of seal of approval for the funds by independent rating agencies are also under discussion .
At the G8 summit (G7 countries and Russia) in Heiligendamm in June 2007 , however, no proposals were made with regard to the industry 's self-commitment . Opposition to this came from the US and UK, the countries from which the majority of the funds operate. The participating heads of state and government, however, warned the hedge fund industry to improve the rules of conduct for managers themselves and at the same time reaffirmed the issues already raised by the finance ministers.
At the meeting of the top representatives of the G-20 countries (plus the Netherlands and Spain) in Washington on November 15, 2008, a stronger regulation of speculative hedge funds was decided.
On March 14, 2009, the Treasury Ministers of the G-20 countries agreed in Horsham to introduce a registration requirement for the funds and plans to control the 100 largest hedge funds worldwide. Investors should allow the United States Security and Exchange Commission (SEC) or the British Financial Services Authority (FSA) to inspect their balance sheets.
European Union
In October 2010 the EU finance ministers agreed on stricter regulations for hedge funds and private equity firms. Since July 2011, there has been a uniform regulatory framework for alternative investment funds in Europe with Directive 2011/61 / EU on the managers of alternative investment funds .
Germany
In Germany, hedge funds were generally not admitted to public trading until 2004 . A relaxation took place with the Investment Modernization Act , which came into force on January 1, 2004 and allowed the distribution of special funds with additional risks under certain conditions. They were allowed to use the instruments of short selling and the use of outside capital (leverage effect). The requirements excluded large international hedge funds. Units in single hedge funds were not allowed to be sold to the public in Germany, but only to (semi-) professional investors. The directive 2011/61 / EU on the managers of alternative investment funds , which regulates the fund manager, was implemented in Germany by the capital investment code (KAGB). All alternative investment funds fall under this directive, unless they are covered by the European fund directive, the so-called UCITS directive.
At the end of 2013, 36 hedge funds were licensed in Germany according to the relevant regulations. German hedge funds are subject to supervision by the Federal Financial Supervisory Authority (BaFin), and their use of outside capital is limited. So it is a "tamer" variant of the hedge fund; many international hedge funds have not been approved.
Great Britain
In the UK , the managers of the hedge funds are subject to the authority of the Financial Conduct Authority (FCA).
Liechtenstein
In Liechtenstein , hedge funds are regulated by the FMA Liechtenstein Financial Market Authority .
United States
The US Securities and Exchange Commission regulates hedge funds in the US. To this end, it has issued rules for borrowing and short selling. Due to the regulations, many hedge funds do not register, which means that they are not approved for public distribution. However, access is available to SEC-registered “qualified” investors (qualification for registration: more than USD 200,000 annual income and more than USD 1 million personal net worth). Each hedge fund trading as a “Limited Partnership LP” is limited to 499 “partners”. The SEC introduced rules during 2004 for hedge funds that manage more than $ 25 million and are open to new investors. The rules have been in effect since February 1, 2006 (the rules are linked under Web Links / Authorities).
Since there have been no disclosure requirements so far , American hedge funds are trying to build trust in other ways under the pressure of competition, for example with certification according to ISO 9000 .
On November 13, 2008, managers of the five largest hedge funds were summoned before a congressional committee; this is to find out whether hedge funds pose a threat to the financial system. George Soros , Philip Falcone , John Paulson , James Simons, and Kenneth Griffin have been heard as witnesses for the hedge fund industry. They agreed to tighter controls and the closing of disproportionate tax loopholes.
The largest hedge funds and funds of funds
There are a number of hedge fund databases from various providers, including a. the publicly accessible databases for hedge funds Barclayhedge ( Barclays ), Hedge Fund Research (HFR) and TASS ( Lipper ).
- Hedge funds and hedge funds of funds 2019
The largest hedge funds as of June 30, 2019 were:
| rank | Manager | Capital (billion USD) |
|---|---|---|
| 1. | Bridgewater Associates ( USA ) | 132.050 |
| 2. | Renaissance Technologies (USA) | 68,000 |
| 3. | Man Group ( GBR ) | 62,000 |
| 4th | AQR Capital Management | 60.840 |
| 5. | Two Sigma Investments / Advisers | 42,900 |
The largest fund of hedge funds as of June 30, 2018 were:
| rank | Manager | Capital (billion USD) |
|---|---|---|
| 1. | UBS Hedge Fund Solutions | 38.027 |
| 2. | Goldman Sachs Asset Management (USA) | 35,544 |
| 3. | Grosvenor Capital Management (USA) | 28.248 |
| 4th | BlackRock (USA) | 22.605 |
| 5. | Morgan Stanley Investment Management (USA) | 22.276 |
See also
Lobbying organizations
- BAI - Federal Association of Alternative Investments e. V.
- Managed Funds Association
- Association of Alternative Investments Austria
literature
- Bernd Berg: Financial crises and hedge funds - financial magicians or crisis triggers? , Gabler, Wiesbaden 2009, ISBN 978-3-8349-1551-1 .
- Michael Busack, Dieter G. Kaiser: Handbook Alternative Investments Gabler (in two volumes), Wiesbaden 2006, ISBN 3-8349-0151-2 .
- Ursula Fano-Leszczynski: hedge funds for beginners. Springer, Berlin a. a. 2005, ISBN 3-540-22695-8 .
- Claus Hilpold, Dieter Kaiser: Alternative Investment Strategies. Insight into the investment techniques of hedge fund managers. Wiley-VCH, Weinheim 2005, ISBN 3-527-50105-3 .
- Alexander M. Ineichen: Absolute Returns. Wiley, New Jersey 2003, ISBN 0-471-25120-8 .
- Dieter Kaiser: hedge funds. Gabler, Wiesbaden 2004, ISBN 3-409-15013-7 .
- Sebastian Mallaby: More money than God. Hedge funds and their fantasies of omnipotence. from the English by Horst Fugger; FinanzBookverlag, Vienna 2011, ISBN 978-3-89879-629-3 .
- Werner G. Seifert, Hans Joachim Voth: Invasion of the locusts. Intrigue - power struggles - market manipulation. Econ, Berlin 2006, ISBN 3-430-18323-5 .
- Markus Sievers: Investing in hedge funds. Basic knowledge for private investors. Finanzbuch, Munich 2007, ISBN 978-3-89879-353-7 .
- Thomas Weber: The basics of hedge funds. Campus, Frankfurt am Main 2004, ISBN 3-593-37443-9 .
Web links
Individual evidence
- ↑ Guido Eilenberger, Lexikon der Finanzinnovationen , 1996, p. 213
- ↑ Roger Lowenstein, The Big Mistake: The Spectacular Story of the Rise and Fall of the Most Refined Investment Fund of All Time , 2007, pp. 45 f.
- ↑ Ursula Radel-Leszczynski, Hedge Funds for Beginners , 2005, p. 144
- ↑ Guenter Wierichs / Stefan Smets, Gabler Kompakt-Lexikon Bank und Börse , 2010, p. 116
- ^ Hedge Fund Survey. (PDF) Financial Conduct Authority, June 2015, accessed December 29, 2016 .
- ↑ Dailyii.com: They Cayman, They Saw, They Conquered ( Memento of 10 March 2007 at the Internet Archive ). May 2006.
- ^ Wall Street Journal . July 2005, various
- ↑ Bernd Berg, Finanzkrisen und Hedgefonds , 2009, p. 52
- ↑ Michel Verlaine, Les rentabilités sont-elles manipulés? d'Land, supplement placements . November 20, 2009, p. 20.
- ↑ Nicholas PB Bollen / Veronika K. Pool, Do Hedge Funds misreport returns? Evidence from the pooled distribution , in: The Journal of Finance, Vol. 64, No. 5, 2009
- ^ Daniel Kahneman / Amos Tversky, Advances in Prospect Theory. Cumulative Representation of Uncertainty , in: Journal of Risk and Uncertainty, 1992, pp. 297-323
- ^ Siegfried G. Häberle (Ed.), Das neue Lexikon der Betriebswirtschaftslehre , Volume 1, 2008, p. 561
- ↑ Bernd Berg, Finanzkrisen und Hedgefonds , 2009, p. 51
- ↑ Markus Sievers, Investing in Hedge Funds , 2007, p. 51
- ↑ Statista of November 22, 2018, development of the assets under management of hedge funds worldwide from 2000 to the 3rd quarter of 2018
- ↑ Financial Times Deutschland: Turmoil in the markets: Hedge fund death is accelerating ( memento from September 3, 2013 in the web archive archive.today ), March 18, 2009.
- ↑ Handelsblatt: Stricter regulation for hedge funds.
- ↑ BaFin, 2013 annual report
- ↑ The SEC's Registration Rules for Hedge Funds in the United States
- ↑ Top Hedge Fund Managers Face Lawmakers. (by Reuters) . In: New York Times . November 13, 2008.
- ↑ Lindsay Renick Mayer: Hedge Fund Managers Plead Their Case on Capitol Hill. on opensecrets.org , November 14, 2008.
- ↑ Pensions & Investments: The largest managers of hedge funds. September 16, 2019, accessed on November 13, 2019 .
- ↑ Pensions & Investments: The largest hedge funds-of-funds managers. September 16, 2019, accessed on November 13, 2019 .
