<p>Background: Hedge funds as an alternative investment are a rapidly increasing market. The change in the financial climate during the last ten years has created a greater awareness of hedge funds. Hedge funds in contrast to other funds has the ability to invest in all kinds of securities like stocks, bonds, derivatives and currencies and by combining hedge funds in a portfolio one can reduce the risk while increase the return. We found an interest in the subject because we realized that there is a lack of studies made on hedge funds in Sweden.</p><p>Purpose: The aim for this study is to analyze the hedge funds that are present on the Swedish market in terms of investment strategies and performance. We aim to statistically investigate whether or not there is more general investment strategies present on the Swedish market. The objective is to investigate whether or not the Swedish market differ from the international market.</p><p>Method: The method used in this study is quantitative with a deductive approach. We have studied several previous studies and the literature in order to find the best statistical methods and to form appropriate hypotheses. Since the Swedish hedge fund market is relatively small, we are going to study a whole population. To find the hedge funds that is active on the Swedish market we have compiled lists from two financial magazines and the Swedish fund statistics. The main statistical tools used to analyze our data are the Principal Component Analysis and the Pearson correlation coefficient.</p><p>Conclusions: We found that there are some differences between the Swedish hedge fund market and the global market. The Principal Component Analysis proved that there is possible to derive five different investment strategy groups on the Swedish hedge fund market. However, these strategies are not as mutually exclusive as one would expect due to their possibility to use several dynamic trading strategies. We found that one investment strategy is dominating the market. This is not consistent with international studies. We also found that the Swedish market is not performing as well as the international market. Internationally hedge funds have a growth rate of 20 percent annually while hedge funds on the Swedish market have a growth rate of 20 percent over three years.</p><p>Due to the fact that we found that the Swedish hedge fund market is relatively homogenous and that Swedish hedge funds provide a lower yield than international funds we concluded that hedge funds on the Swedish market is not acting in accordance to theory.</p> / <p>Bakgrund: Under de senaste 10 åren har hedge fonder och dess marknad successivt ökat i popularitet och storlek. Detta har skett som en följd de förändringar som skett i vår finan-siella miljö. Hedge fonder i kontrats till traditionella fonder har möjligheten att investera i fler olika finansiella instrument så som aktier, obligationer, derivat och valutor. Genom att kombinera hedge fonder i en portfolio kan man reducera risken samtidigt som man ökar avkastningen. Vårt intresse i ämnet väcktes på grund av bristen av forskning på hedge fon-der i Sverige.</p><p>Syfte: Syftet med vår studie är att analysera de hedge fonder som är aktiva på den Svenska marknaden i form av investerings strategier och utveckling. Vi syftar till att statistiskt undersöka om det finns generella investerings strategier på den Svenska marknaden. Målet är att undersöka om den svenska marknaden skiljer sig ifrån den internationella marknaden.</p><p>Metod: Vi har använt kvantitativ metod med ett deduktivt synsätt. För att hitta de bästa statistiska metoderna och för att kunna forma lämpliga hypoteser har vi har studerat flera tidigare studier och litteratur inom ämnet. Eftersom den svenska hedge fond marknaden är relativt liten kommer vi att undersöka en hel population. De hedge fonder som är aktiva på den svenska marknaden har vi hittat genom att sammanföra listor från två finansiella tidningar och en lista över hedge fonder från Svensk Fondsstatistik. Vi kommer i huvudsak att använda en Principal Komponent Analys och Pearsons korrelations koefficient.</p><p>Slutsats: Vi kom fram till att det finns vissa skillnader mellan den svenska marknaden och den globala marknaden. Principal Komponent Analysen påvisade att det är möjligt att identifiera fem olika investerings strategier på den svenska hedge fond marknaden. Dock är dessa strategier inte så olika som förväntat på grund av deras möjlighet att använda flera dynamiska investerings strategier. Det visade sig att en investering strategi dominerar marknaden vilket inte överstämmer med andra internationella studier. Vi kom också fram till att svenska hedge fonder inte visar samma positiva utveckling som internationella hedge fonder när det gäller utveckling. Internationella hedge fonder har en avkastning på 20 procent årligen medan Svenska hedge fonder har en avkastning på 20 procent över tre år.</p><p>På grund av att vi kom fram till att svenska hedge fond marknaden är relativt homogen och att svenska hedge fonder har en lägre avkastning än internationella hedge fonder så drar vi slutsatsen att svenska hedge fonder inte följer de generella hedge fond teorierna.</p>

Hedge funds introduce considerable volatility into global financial markets. Given the volume of capital they mobilize, hedge funds are capable of precipitating 'herding'---the underlying dynamic behind the transmission of financial distress and the precursor to systemic crises. Greater regulatory oversight of hedge-fund activities could reduce these excesses without necessarily impinging on the self-correcting mechanism of the free market. Presently, there is no regime or monetary authority in place that would compel states to undertake efforts to enhance existing regulatory structures so as to mitigate the exigency of systemic risk. That coordination has not been achieved exposes both the obstacles facing monetary cooperation for establishing a more robust international financial order and the limitations of liberal theories of international cooperation. It also makes evident the importance of hegemonic participation in the construction of economic regimes in an era of accelerating financial globalization.

With the financial crisis of 2008 and more retirement funds and insurance companies entering the hedge fund industry, the safety of investor assets has become vital. According to a worldwide study by Kundro and Feffer (2002:42), operational risk factors account for almost half of hedge fund failures. The issues that underlie the operational risk factors relate to valuation of the fund’s assets and liabilities. Unless certain valuation practices become more widespread, hedge funds face a potential crisis of confidence with institutional and high net worth investors (Kundro and Feffer, 2002:42). Despite the improvements made by administrators to deal with the complexities of hedge fund investments, the accuracy of some valuations remains open to question (McVea 2008:135). Hedge fund manager inputs into valuations compromise the degree of independence exercised, particularly with regard to complex and/or illiquid instruments. The perception that administrators lack the required technical expertise to value complex and/or illiquid assets exacerbates the issue of administrator’s reliability to provide independent valuations. Therefore, the reliance on administrators to guarantee the quality of valuations of complex instruments is in question. The aim of the study was to identify ways to improve operational risk management practices, particularly valuations, in hedge funds through identifying ways of promoting effective functioning of independent third-party administrators. This was achieved through a case study approach using a South African leading administrator, Investment Data Services, as the object of study. The literature highlighted the changing functions of administrators, the challenges facing them and ways of addressing those challenges. The empirical study measured the extent of IDS’ valuation practices in managing operational risk in hedge funds. Four key members of IDS’ management team and one hedge fund manager with considerable insight were interviewed. The data obtained was then reduced into meaningful results. The empirical findings were compared with the theory provided in the literature scrutiny to identify ways of improving the valuation function. The conclusion was that the challenges faced by the administrator were addressed through proper independence, consistency and transparency of the valuation process. A crucial cog in IDS’ wheel is the employment of staff with the required technical skills to understand complex financial instruments. In addition, investment in advanced systems and technology is important in managing the risks involved. Consequently, IDS’ valuation practices can be used as template for other administrators in their efforts to manage the operational risks in hedge funds.

No description available.

The 2007–2009 financial crisis led to a decrease in consumer and investor confidence worldwide (SARB, 2008:2). Along with the weakened business sentiment and consumer demand, tightened funding conditions in financial markets, increased inflationary pressures, and declining global manufacturing activities, the world economic recession that followed the collapse of the world financial sector led to an estimated wealth destruction of approximately US$50 trillion (SARB, 2008:2; Aisen & Franken, 2010:3; Karunanayake et al., 2010). Apart from this estimate, the International Monetary Fund (IMF) also projected that the global bank balance sheets in advanced countries suffered losses of approximately US$4 trillion during the period 2009–2010 (Aisen & Franken, 2010:3). As a result, investors have become more risk-adverse (Guiso et al., 2013:1), and the consequences of the financial crisis, made insurable profitable investment decisions extremely difficult as market volatility tends to increase during crises periods (Karunanayake et al., 2010; Schwert, 1989:83). With the financial environment in distress, some fund managers consider equities as the preferred asset class to protect the purchasing power of their clients (Ivan, 2013). However, the studies of Ennis and Sebastian (2003) and Nicholas (2004) found evidence that hedge funds will outperform equity markets during a downswing in financial markets. In addition, hedge funds are considered market-neutral due to these investment funds’ unrestricted investment flexibility and more efficient market timing abilities (Ennis & Sebastian, 2003). Hedge funds are also considered to be more unconventional assets for improving portfolio diversification (Lamm, 1999:87), where the variation of investment strategies available in a hedge fund has the ability to satisfy investors with several different risk preferences (Shin, 2012). Still, a number of previous studies have debated conflicting evidence regarding the performance of hedge funds and the persistence in outperforming other markets. This led to the objective of this study; to evaluate the risk-adjusted performance of US and EU hedge funds compared to the associated world equity markets over the 2007–2009 financial crisis. The evidence from this study confirmed the dominance of hedge funds over the CAC 40, DAX, S&P 500 and Dow Jones, from 2004 to 2011, emphasising that the performance of the US and EU hedge funds would overshadow a normal buy-and-hold strategy on the world equity markets under investigation. Overall, the Sharpe-, Sortino-, Jensen’s alpha-, Treynor- and Calmar ratios illustrated that US hedge funds outperformed both EU hedge funds and the associated equity markets over this period. The presence of non-normality among the return distributions led to the use of the Omega ratio as the proper benchmark, which also confirmed the outperformance of US hedge funds over EU hedge funds and associated world equity markets. / MCom (Risk Management), North-West University, Vaal Triangle Campus, 2014

The 2007–2009 financial crisis led to a decrease in consumer and investor confidence worldwide (SARB, 2008:2). Along with the weakened business sentiment and consumer demand, tightened funding conditions in financial markets, increased inflationary pressures, and declining global manufacturing activities, the world economic recession that followed the collapse of the world financial sector led to an estimated wealth destruction of approximately US$50 trillion (SARB, 2008:2; Aisen & Franken, 2010:3; Karunanayake et al., 2010). Apart from this estimate, the International Monetary Fund (IMF) also projected that the global bank balance sheets in advanced countries suffered losses of approximately US$4 trillion during the period 2009–2010 (Aisen & Franken, 2010:3). As a result, investors have become more risk-adverse (Guiso et al., 2013:1), and the consequences of the financial crisis, made insurable profitable investment decisions extremely difficult as market volatility tends to increase during crises periods (Karunanayake et al., 2010; Schwert, 1989:83). With the financial environment in distress, some fund managers consider equities as the preferred asset class to protect the purchasing power of their clients (Ivan, 2013). However, the studies of Ennis and Sebastian (2003) and Nicholas (2004) found evidence that hedge funds will outperform equity markets during a downswing in financial markets. In addition, hedge funds are considered market-neutral due to these investment funds’ unrestricted investment flexibility and more efficient market timing abilities (Ennis & Sebastian, 2003). Hedge funds are also considered to be more unconventional assets for improving portfolio diversification (Lamm, 1999:87), where the variation of investment strategies available in a hedge fund has the ability to satisfy investors with several different risk preferences (Shin, 2012). Still, a number of previous studies have debated conflicting evidence regarding the performance of hedge funds and the persistence in outperforming other markets. This led to the objective of this study; to evaluate the risk-adjusted performance of US and EU hedge funds compared to the associated world equity markets over the 2007–2009 financial crisis. The evidence from this study confirmed the dominance of hedge funds over the CAC 40, DAX, S&P 500 and Dow Jones, from 2004 to 2011, emphasising that the performance of the US and EU hedge funds would overshadow a normal buy-and-hold strategy on the world equity markets under investigation. Overall, the Sharpe-, Sortino-, Jensen’s alpha-, Treynor- and Calmar ratios illustrated that US hedge funds outperformed both EU hedge funds and the associated equity markets over this period. The presence of non-normality among the return distributions led to the use of the Omega ratio as the proper benchmark, which also confirmed the outperformance of US hedge funds over EU hedge funds and associated world equity markets. / MCom (Risk Management), North-West University, Vaal Triangle Campus, 2014

I examine local bias in hedge fund portfolio selection, using Section 13-F original and confidential holding filings. Using Coval and Moskowitz (1999) measure, I find that local bias is present among U.S.-based hedge funds. The holdings of funds are on average 20-67 km closer to hedge funds than the market. I also find that size and leverage of a company serve as determinants of local bias, with the preference of hedge funds for smaller and more levered local companies. I suggest an alternative model for assessment of local bias that yields results further supporting the hypothesis of the existence of local bias among hedge funds. I do not find a positive effect of local bias on performance. Moreover, in some periods I find a strong negative effect of local bias both on raw and risk-adjusted returns. I argue that these findings suggest that the origins of local bias should not be looked for in information asymmetry, and rather may be attributed to perceived informational advantage, flight to familiarity, and some endogenous factors of hedge fund locality.

Consistent with the well-documented relation between political orientation and psychological traits, hedge funds' political orientations are related to their portfolio decisions. Relative to politically conservative hedge funds, politically liberal hedge funds exhibit a preference for smaller stocks, less mature companies, volatile stocks, unprofitable companies, non-dividend paying companies, and lottery-type securities. Politically liberal hedge funds are also more likely to enter new positions or fully exit existing positions, and make larger adjustments to their U.S. equity market exposure. Our results suggest that psychological characteristics can influence the portfolio decisions of even those at the very top of the financial sophistication ladder.

This study examines the performance of recently introduced passively-managed exchange-traded hedged funds (HETFs). Using data that cover the period 2008 to 2017 of all available HETFs under global macro and long-short classifications with sufficient number of observations, the study provides the most complete and update measure and documentation of the performance of these two fund categories. Little research has been done on HETFs' performance in despite of the rapid growth and expected future expansion of their market sizes, since the introduction of HETFs expands for ordinary investors investment opportunity set that were only available to high net wealth individuals and institutions. Using a simple 3-three factor model including equity, bond and volatility factors, it shows long-short HETFs cannot closely follow the returns of their corresponding indexes as global macro HETFs. By using Fung and Hsieh's (2004) 7-factor model, and Edelman, Fung and Hsieh's (2012) revised 8-factor model, significant negative alphas are found for strategy portfolios. The relatively poor performance of the HETFs can be attributed to their high expense ratio and their failure to closely track the benchmark index.

Hedge fund investing is a relatively new phenomenon in Sweden. The first Swedish hedge fund was started in 1996. This new financial sector has since showed a steady growth. Due to the novelty of hedge fund phenomena, it is right to ask whether the investors are prepared for this kind of investments; how they choose their hedge funds investments and whether they have adequate knowl-edge in the field. This thesis provides a mapping of the investors’ behavior regarding hedge fund investments. We have concluded that Swedish hedge fund investors have a limited basis of knowledge required to fully utilize hedge funds in their portfolios.