In a narrow sense, funds that use hedging methods are called hedge funds, also known as hedge funds or hedge funds. It refers to financial funds for the purpose of profit after combining financial derivatives such as financial futures and financial options with financial instruments.
It is a form of investment fund, which means "risk offset fund". Hedge funds use various trading methods to hedge, transpose, hedge, and hedge to make huge profits. These concepts have gone beyond the traditional scope of risk prevention and income protection. In addition, the legal threshold for launching and establishing a hedge fund is much lower than that of a mutual fund, which further increases risks.
Broadly speaking, in the financial market, some fund organizations use financial derivatives to adopt various investment strategies to make profits. These fund organizations are called hedge funds, rather than literally "funds with hedging strategies."
Now hedge funds have long lost the connotation of risk hedging. On the contrary, it is generally believed that hedge funds are actually based on the latest investment theories and extremely complex financial market operating skills, make full use of the leverage of various financial derivatives, bear high risks, pursue high returns, and actually represent a kind of financial asset. .
Characteristics of Hedge Funds
Hedge funds generally have the following four characteristics: high leverage of investment results, complexity of investment activities, private placement of financing methods, and concealment of operations. and flexibility.
1. High leverage
Typical hedge funds often use bank credit to increase investment funds several times or even dozens of times on the basis of their original funds with extremely high leverage. , in order to achieve the purpose of maximizing revenue. The high liquidity of hedge fund securities assets makes it easy for hedge funds to make mortgage loans. The existence of leverage also makes hedge funds a high-risk, high-return investment model.
2. Complexity
As the structure becomes increasingly complex and the tricks are constantly updated, various financial derivatives such as futures, options, and swaps have gradually become the main operating tools of hedge funds. These derivatives were originally intended to hedge risks, but due to their low cost, high risk, and high return characteristics, they have become an effective tool for many modern hedge fund speculations. Hedge funds match these financial instruments with complex portfolio designs, invest according to market predictions, and obtain excess profits if the predictions are accurate, or use the disequilibrium design investment strategies caused by short-term mid-term fluctuations to obtain the return of the market to normal. time difference.
3. Direct sales when issuing bonds
Hedge funds are mostly private equity, and the organizational structure is generally a partnership. Fund investors invest capital into shares and provide most of the capital but do not participate in investment activities; fund managers join with capital and skills and are responsible for the fund's investment decisions. Since hedge funds require a high degree of concealment and flexibility in operations, investors are generally large fund holders, and the number of investors will be controlled within a certain range (generally no more than 100 in the United States, no more than 50 in Japan) people).
4. Concealment and flexibility
Hedge funds and securities investment funds of ordinary investors not only have many differences in fund investors, fund raising methods, information disclosure requirements and supervision levels Big difference. There are also many differences in the fairness and flexibility of investment activities. Investment funds generally have a clearly defined investment portfolio. That is to say, there is a definite plan in the selection and proportion of investment tools, such as balanced funds, which means that stocks and bonds in the fund portfolio are roughly equal to half, and growth funds are mainly high-growth stocks; at the same time,** *Same funds are not allowed to use credit funds for investment, while hedge funds have no restrictions and definitions in these aspects. They can use all available financial instruments and combinations to maximize the use of credit funds in order to obtain excess returns higher than the average market profit. Due to the high degree of concealment and flexibility of operations and the effect of leveraged financing, hedge funds play an important role in speculative activities in modern international financial markets.
The development of hedge funds in China
As China’s financial and capital markets continue to diversify and internationalize, more and more overseas hedge funds are beginning to pay attention to China. In this important stage of vigorous development and improvement of domestic hedge funds, overseas hedge funds with rich experience in international capital are also eyeing the Chinese cake. Many overseas hedge funds or people with experience in hedge fund management and investment abroad are ready to try or have already settled in China to seek opportunities for development and cooperation.
Overseas hedge funds value China’s development. In fact, there are nothing more than three reasons:
First, the gradual internationalization of the RMB and the gradual opening up of cross-border flows of RMB assets have allowed some domestic asset managers or investors to provide a large number of overseas opportunities. It can also provide a large number of foreign institutional investors and high-net-worth customers with opportunities to enter the Chinese market.
Second, my country’s regulatory authorities and the fund industry are becoming more and more open to hedge funds, and the fund law is constantly being revised and improved, giving the secondary market in which hedge funds participate more liquidity. can truly develop.
Third, the appreciation of China’s wealth. Banks' high-net-worth clients manage 17 trillion yuan in funds, while public funds manage only 2 trillion yuan and Sunshine Private Equity only manage 250 billion yuan. In the future, Chinese wealth will flow into more efficient and actively managed investments.
This article comes from Capital State.
Related questions and answers: The characteristics of hedge funds are ( ).
ABCD hedge fund is HedgeFund, which has four characteristics: high leverage of investment effect, complexity of investment activities, private equity of financing method, concealment and flexibility of operation