A study of traditional large cap equity manager has shown that the manager’s returns practically replicate the S&P 500, with beta of 1 and correlation coefficient of 0.99. This means that the fund is a beta driver, not an alpha driver.
In order to generate alpha, hedge funds may seek to delve into more exotic space such as commodities, mortgage backed securities, distressed debt, event driven etc., i.e., certain markets that investors shy away from due to the complexity of the transactions.
The article noted that the common characteristics of the debt transactions involve complex, illiquid, niche investment outlays and distressed seller. Thus most of the hedge funds involved in these deals create a hybrid lock up period between private equity and hedge fund, that is between two to five years.
The key to finding these exotic opportunities is via strong relationships between hedge fund manager and institutional hedge fund of funds, and thereafter the ability for swift execution.
There is also a novel strategy set to debut this fall to short the European sovereign debt.
Full article can be assessed here, Hedge Fund Managers Sifting Through ‘Busted' Credit for Deals
Also see, Hedge Funds Going Public for investment ideas including hedge fund FIG, which was mentioned in the article
Disclosure: No positions in any of the stocks listed above but may initiate it within the next 24 hours.
Note: This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.
In order to generate alpha, hedge funds may seek to delve into more exotic space such as commodities, mortgage backed securities, distressed debt, event driven etc., i.e., certain markets that investors shy away from due to the complexity of the transactions.
The article noted that the common characteristics of the debt transactions involve complex, illiquid, niche investment outlays and distressed seller. Thus most of the hedge funds involved in these deals create a hybrid lock up period between private equity and hedge fund, that is between two to five years.
The key to finding these exotic opportunities is via strong relationships between hedge fund manager and institutional hedge fund of funds, and thereafter the ability for swift execution.
There is also a novel strategy set to debut this fall to short the European sovereign debt.
Full article can be assessed here, Hedge Fund Managers Sifting Through ‘Busted' Credit for Deals
Also see, Hedge Funds Going Public for investment ideas including hedge fund FIG, which was mentioned in the article
Disclosure: No positions in any of the stocks listed above but may initiate it within the next 24 hours.
Note: This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.
