Hedge Funds What are they?

Designed With a Strategy A Hedge Fund is a fund, like a Mutual Fund – Investors put money in a pool – A professional group of managers is in control – Investors receive payment of interest, or dividends, or capital appreciation – The fund also charges fees

How It Is NOT like a Mutual Fund Not regulated the same way Uses leveraged trading techniques (like Private Equity does) that are not allowed in Mutual Funds Can be “offshore” (in a foreign location, helps for tax purposes) Not transparent – can’t look it up on Yahoo Finance Hedging – protecting against loss of investment – Using an offsetting position (e.g. shorting a stock you hold long) Locked-in for a certain period

Who Invests? High net worth people - $50 million + – Why? – Traditional investments trigger tax consequences – They have more money to risk for a higher reward – They move money more often because they have to be strategic about their investments – They don’t need the money now so they can tie it up longer

What Are Some Of The Risks? Limit exposure to foreign investments – Sectors that used to be attractive may be too risky right now (e.g. China, Middle East, Russia, Africa) Changing Regulation – Funds can either take advantage of or avoid regulatory changes that provide opportunities or unwanted risks – Example: When Obamacare came into being, regulations forced businesses to pay for medical insurance for employees who were previously ineligible – Who benefits from that? Who loses?

Strategies Foreign Exchange Arbitrage Private Equity Long/Short Equities (Stocks) Distressed Bonds and Subprime Lending Options and Futures Convertible Bonds and Preferred Stock Funds of Funds, Index Investing Collectibles Mergers and Acquisitions