AIBC 2024 Introductory Series: The Essentials of Hedge Funds
4. Appendicies
8 BNPParibasPresents:ALeapofChangewithAsiaPacificEarlyCareers
9 EngagewithAIBC2024–AGatewaytoAPACRecruitmentOpportunities
10 AsiaInvestmentandBankingConferenceDisclaimerClause
AIBC Global Research Team continues to provide unparalleled student development opportunities in 2024
It is with great pleasure that we welcome you to the Asia Investment and Banking Conference (AIBC) 2024, where this year's theme, "Redefining Boundaries," encapsulates our commitment to shaping the future of finance In line with this vision, we proudly present the #AIBCResearch series an endeavour to merge academic research with industry insights, developed by our student analysts.
This curated collection of articles aims to provoke thought and challenge thinking AIBC's dedication to student development, strategic talent discovery, and meaningful industry connections is exemplified through our research initiative. These components are integral to our foundational goal of equipping emerging finance professionals with the tools to transcend traditional barriers.
We invite you to engage fully with this series, allowing the insights within to broaden your perspectives May your journey through the #AIBCResearch series inspire you to redefine your own boundaries and contribute to the ever-evolving narrative of the finance industry.
The Introductory Series is a practical collection aimed at providing a clear view of the foundational elements of finance It consists of eight research booklets, each one concentrating on a key area within the finance sector, topics which will be part of the AIBC 2024 conference discussions.
These booklets are created to cut through the complexities of finance, offering clarity to readers from all backgrounds Our objective is to equip you with a basic yet comprehensive understanding of each financial domain, underlining its specific functions, the challenges it encounters, and the potential it holds within the global financial framework.
Overviews and insight Follow the 8 themes unfolding throughout the conference
Investments in assets outside of stocks, bonds, and cash, including real estate, commodities, and collectables.
Private investment funds employ various strategies to earn active returns for their investors, often using leverage and derivatives.
The process of developing, operating, maintaining, and selling assets to maximise investor returns.
Banking services offered to high-networth individuals, providing personalised financial advice and solutions. The use of mathematical models and algorithms to identify trading opportunities and manage investments automatically.
Financial services dealing with the creation of capital for other companies, governments, or other entities through underwriting or acting as the client's agent in the issuance of securities.
Investment in private companies or buyouts of public companies, aiming to restructure or improve their operations and profitability before selling them for a profit.
The buying and selling of securities, commodities, and other financial instruments in financial markets, through either facilitating transactions for clients or trading on their own firm’s behalf.
Hedge funds are private investment partnerships or funds that engage in varied, often aggressive investment strategies Unlike traditional investment funds, hedge funds are not restricted to specific investment approaches or asset classes They can invest in equities, bonds, commodities, derivatives, real estate, and more.
Hedge funds aim to generate high returns through strategies like long-short equity, market neutral, arbitrage, macro-trends, and event-driven investments These strategies are designed to achieve positive returns regardless of the overall market direction, hence the term "hedge "
Returns from non-cyclical stocks can help offset losses in cyclical stocks. Hedge funds’ client base typically comprises of wealthy individuals, institutional investors, and pension funds Some of the largest hedge funds (by AUM as of 2024) include Bridgewater Associates (US$97bn), Millenium Management (US$57bn) and Citadel (US$53bn)
Hedge funds have high minimum investment requirements, which means that typically only high net-worth individuals (HNWIs) or institutional investors such as pension funds, insurance companies and banks can invest in them. There is typically a higher risk associated with hedge funds. This is because hedge funds often use leverage (i.e. borrowed money) to amplify returns, which also increases the potential for significant losses. Furthermore, hedge funds face less regulation, allowing them to pursue riskier and less liquid investments Nevertheless, nvestors are drawn to hedge funds due to the potential for higher returns (Alpha), as hedge funds strive to outperform the market and offer the potential for higher returns compared to traditional investments. Furthermore, the variety of strategies and assets used by hedge funds means that they provide hedging or diversification purposes, hence its name. This helps to reduce overall portfolio risk. The performance of hedge funds can be uncorrelated with traditional markets such as stocks and bonds. This can be very effective in various market conditions, including declining markets
This is the most popular strategy and refers to buying undervalued stocks (with the expectation that they will rise in value) and short-selling overvalued stocks (selling borrowed stocks with the plan to buy them back at a lower price) Profits are made from the eventual price correction when the market recognizes the true value of these assets These funds usually have net long market exposure because they do not counterbalance their entire value of long positions with equivalent short positions As a result, the part of the portfolio that remains unhedged can lead to variable performance, influenced by the timing of the market and its fluctuations
Balancing long and short positions to reduce market risk
Aiming for a balanced approach, these funds ensure investment in long positions is equally offset by short positions, leading to no net exposure to market movements
The primary return for these funds comes from the skill in selecting stocks This strategy typically entails lower risk compared to strategies that are biased towards long positions, but as a trade-off, the expected returns might also be lower
Exploiting price differences in similar assets such as equities, bonds, currencies and commodities For example, taking advantage of different parts of the bond market with divergent views on interest rates or inflation
Investing by taking views on global economic or political events, using derivatives on equities, bonds, currencies and commodities to profit from that view. For example, before the Brexit referendum vote, hedge fund managers took up several positions in anticipation of the outcome, such as longing gold expecting investors to rush to safe havens, while shorting European equities and sterling, expecting their value to tumble.
Capitalizing on events like mergers or bankruptcies Hedge funds could buy shares of a company expected to be acquired at a higher price, profiting from the spread between the current market price and acquisition price Funds can also purchase the debt of companies in financial distress, profiting if the company recovers
Leveraging technology, algorithms and models for investment decisions Algorithms are used to analyse large datasets to identify market inefficiencies and trends, processing information at high speeds Some quant funds specialise in high-frequency trading (HFT), where algorithms execute a large number of trades at very high speeds, often holding positions for very short periods to capitalise on small price movements
The recent volatile macroeconomic environment will likely benefit hedge funds. Historically, there has been a strong positive correlation between periods of increased inflation, interest rates and improved performance in the hedge fund sector. Structurally, numerous hedge fund strategies hold substantial amounts of liquid cash. Managers generally opt for leverage through low-margin financial derivatives. Strategies like trend following, global macro, and fixed income relative value often keep cash reserves exceeding 50% of their net asset values. Consequently, when instruments like money market funds or short-term T-bills yield significantly higher interest rates, it provides a boost to the total returns for these managers. Moreover, managers specializing in equity long/short strategies gain from the enhanced interest earned on the returns from stock shorting (known as short rebate)
Hedge funds profit from outperformance of catastrophe bonds in 2023: Catastrophe bonds, also known as ‘cat bonds’, are designed to raise money to cover losses from natural disasters Insurance companies issue them to transfer risk they hold onto investors, protecting insurers against large-scale disasters They returned 20% over the past year, beating nearly all other debt securities With growing concerns about extreme weather due to climate change and shift of risk to capital markets, the spread (i e the premium over the risk-free rate that investors are paid to taken on catastrophe risk) peaked in 2023
Leverage our platforms to connect with AIBC 2024, whether you're a seasoned graduate or new to the world of investment and banking. Here's how you can get involved:
Search for and follow #aibcResearch on LinkedIn to access our extensive library of free-to-view research reports. Gain insights and expand your understanding of the global finance landscape.
Get updates for events on Instagram
Stay in the loop with event signups and the latest AIBC 2024 conference news on our Instagram account.
Join our conference in 28-30 August 2024
Interested in joining AIBC 2024? Visit our website to apply and secure your place at the conference.
Be part of the conversation that's shaping the future of finance.
Be part of conversation that's shaping the future of finance.
Introducing AIBC 2024 | Save the Date | AIBC
40+countries
140+universityparticipation
150+globalpartners
TopfinancialInstitutionalsposonsor
WanttolearnmoreaboutAIBC?Checkoutour introductorycommercialnow!
The information provided in this report (the "Report") on Asia Investment and Banking Conference is for general informational and educational purposes only. All information in the Report is provided in good faith. However, we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information in the Report.
The Report is not intended to provide, and should not be relied on for, investment, accounting, legal, or tax advice. You should consult your own investment, legal and tax advisors before engaging in any transaction. The views, thoughts, and opinions expressed in the Report belong solely to the author, and not necessarily to the author’s employer, organization, committee or other group or individual.
The Report may contain forward-looking statements that involve risks and uncertainties, and actual outcomes and results may differ materially from those expressed or implied in the forward-looking statements. Past performance is not indicative of future results.
Asia Investment and Banking Conference is not a registered investment advisor or broker/dealer. Neither Asia Investment and Banking Conference nor any of its affiliates or representatives are providing you with investment advisory services or with advice on the value of securities or on the advisability of investing in, purchasing, or selling securities, or on the merits of any investment strategy.
By accessing and using the Report, you agree to hold Asia Investment and Banking Conference, the author, and any affiliates associated with the Report harmless and waive any and all claims, losses, liabilities, costs, and expenses that you may have against them. This disclaimer may be subject to updates and changes.
