You can name many aliases of hedge funds, such as hedge funds, arbitrage funds and hedge funds, but it is not easy to say what hedge funds are. A variety of large-scale financial reference books have been published in China since 1990s, such as Dictionary of New International Finance (edited by Liu Hongru, 1994) and Encyclopedia of International Finance (edited by Wang Chuanlun). , 1993), has been selected as hedging, fund and arbitrage. But there is no "hedge fund" entry, which shows that until the mid-1990 s, although some related terms of hedge fund have entered, hedge fund is still unheard of.
Foreign understanding of hedge funds is also quite confusing. Try to list some definitions of hedge funds in the latest research literature as follows. The IMF's definition is that "hedge funds are private investment portfolios, usually set up offshore to make full use of the benefits of taxation and supervision". Mar/Hedge, the first institution in the United States to provide hedge fund business data, is defined as "collecting incentive commission (usually accounting for 15-25%) and meeting at least one of the following criteria: the fund invests in various assets; Only long-term funds must use leverage effect; Or the fund uses various arbitrage techniques in its portfolio. " HFR, another hedge fund research institution in the United States, summed up hedge funds as follows: "Take the form of private investment partnership or offshore fund, extract commissions according to performance, and use different investment strategies." VHFA, a famous American pioneer hedge fund international consulting company, is defined as "taking the form of private partnership or limited liability company, mainly investing in publicly issued securities or financial derivatives."
Federal Reserve Chairman Ben alan greenspan gave an indirect definition of hedge fund when he testified about Long Term Capital Management Company (LTCM) in the US Congress. He said that LTCM is a hedge fund, or a mutual fund, which circumvents supervision by limiting its customers to a few very sophisticated and wealthy individuals and pursues high returns under the investment and trading of a large number of financial instruments.
According to the above definition, especially Greenspan's indirect definition, we believe that hedge funds are not "whispers", but are essentially a kind of * * * mutual fund, with special organizational arrangements and few investors (including private individuals and institutions). For example, it is like a "rich investment club". Compared with ordinary mutual funds, it is a "public investment club". Due to the special organizational arrangements of hedge funds, they can use existing laws and all financial instruments to obtain high returns without supervision and restraint, which leads to many differences from ordinary funds.
Some people think that the key of hedge funds is to use leverage to invest in derivatives. But in fact, as pointed out by the IMF, other investors also participate in exactly the same operations of hedge funds, such as holding positions in the proprietary business departments of commercial banks and investment banks, buying and selling derivatives, and changing asset portfolios in the same way as hedge funds. Many mutual funds, pension funds, insurance companies and universities donate money to participate in some of the same operations and rank among the most important investors in hedge funds. In addition, in the subdivided banking system, the total assets and liabilities of commercial banks are several times their capital. In this sense, commercial banks are also using leverage.
Through the interpretation of the literature, try to make the following comparison between hedge funds and ordinary * * * funds (table 1), from which we can clearly see the characteristics of hedge funds, and then accurately grasp what hedge funds are.
Table 1 Comparison of the characteristics of hedge funds and * * * the same fund
Hedge fund * * * same fund
The number of investors is strictly limited. According to the securities law of the United States, it is required to participate in the name of an individual with an income of at least $200,000 in the last two years; If you participate by surname, your husband and wife have earned at least $300,000 in the last two years; In the name of the organization, the net assets are at least $6,543,800+0,000. 1996 made a new regulation: the number of participants was expanded from 100 to 500. The condition of participants is that individuals must own investment securities worth more than $5 million. infinite
There are few restrictions on portfolio operation and trading, and major partners and managers can freely and flexibly use various investment technologies, including short selling, derivative securities trading and leverage restrictions.
Regulation does not regulate the US Securities Law 1933, Securities Exchange Law 1934 and Investment Company Law 1940. It is stipulated that institutions with less than 100 investors need not be registered with the US Securities Regulatory Commission and other financial authorities when they are established, and are not bound by this provision. Because investors are mainly a few very sophisticated and wealthy individuals, they have strong self-protection ability. Strict supervision because investors are ordinary people, many people lack the necessary understanding of the market. In order to avoid public risks, protect the weak and ensure social security, strict supervision is implemented.
The Private Equity Securities Law stipulates that when attracting customers, no media shall be used for advertising. Investors mainly participate in four ways: based on the so-called "reliable investment news" obtained by the upper level; Know hedge fund managers directly; Transfer through other funds; Special introduction of investment banks, securities intermediary companies or investment consulting companies. Public offering and advertising to attract customers.
Whether offshore funds can be set up usually has the advantages of avoiding the restrictions on the number of investors and tax avoidance in American law. Usually located in the Virgin Islands, Bahamas, Bermuda, Cayman Islands, Dublin, Luxembourg and other tax havens, these places have little tax revenue. Of the $68 billion hedge funds managed by MAR in June, $317 billion was invested in offshore hedge funds. This shows that offshore hedge funds are an important part of the hedge fund industry. According to the statistics of WHFA, if "funds of funds" are not included, the assets managed by offshore funds are almost twice that of onshore funds. Cannot be built at sea.
The degree of information disclosure is not public, and there is no need to disclose financial and asset status information.
Managers get 65438+ fixed management fee of 0%-2% of assets under management, plus 5%-25% of annual profits. Usually a fixed salary.
Whether managers can participate in the stock market.
Are there any restrictions on investors' withdrawal? Most funds require shareholders to inform them in advance if they withdraw their funds: the time for informing them in advance varies from 30 days ago to 3 years ago. Unlimited or less restrictive.
Can I make a loan transaction? You can use your own assets to do mortgage transactions, but you can't do loan transactions.
Small-scale global assets are around 300 billion. Large-scale global assets exceed 7 trillion
Excellent performance 1990 65438+ 10 to1August 998, with an average annual rate of return of 17%, which is much higher than that of general stock investment or pension funds and * * * mutual funds (during the same period, the average annual growth rate of Wall Street Standard & Poor's 500 stocks was only1. It is reported that some well-run hedge funds have an annual return on investment as high as 30-50%. How about ...
2. What is "hedging" and why should it be hedged?
Hedging is also translated as hedging, hedging, support, top risk, hedging and hedging transactions. Pre-hedging refers to "the trading method of offsetting the price risk in spot market transactions by conducting the same kind and quantity of contracts in the futures market but with opposite trading positions" (edited by Liu Hongru, 1995). Early hedging was used in agricultural products market and foreign exchange market for real value preservation. Hedgers are generally actual producers and consumers, or people who own goods for sale in the future, or people who need to buy goods in the future, or people who collect debts in the future, or people who repay debts in the future, and so on. These people face the risk of suffering losses due to changes in commodity prices and currency prices. Hedging is a financial operation to avoid risks. The purpose is to avoid exposure risks in the form of futures or options, so that their portfolios are not exposed. For example, a French exporter knows that he will receive $6,543,800+when he exports a batch of cars to the United States three months later, but he doesn't know what the exchange rate of US dollars to French francs is after three months. If the dollar falls sharply, he will suffer losses. In order to avoid risks, we can short the same amount of dollars in the futures market (payment after three months), that is, lock the exchange rate, so as to avoid the risks brought by exchange rate uncertainty. Hedging can be short selling or short selling. If you already own an asset and plan to sell it in the future, you can lock in the price by shorting the asset. If you want to buy an asset in the future and are worried about its rising price, you can buy the futures of this asset now. Because the essence of the problem here is the difference between the futures price and the spot price due in the future, no one will really deliver this asset, but the difference between the futures price and the spot price due. In this sense, the sale of this asset is short selling and short selling.
So what is the "hedging" of hedge funds? Take Jones, the originator of hedge funds. Jones realized that hedging is a market-neutral strategy. By establishing long positions in undervalued securities and short positions in other securities, investment capital can be effectively increased and limited resources can be used for block trading. At that time, two investment tools widely used in the market were short selling and leverage effect. Jones combined these two investment tools to create a new investment system. He divided the risk in stock investment into two categories: the risk from individual stock selection and the risk from the whole market, and tried to separate the two risks. He used some assets to maintain a basket of short stocks as a means to offset the decline in the overall market level. On the premise of controlling the market risk to a certain extent, at the same time, he used the leverage effect to amplify his gains from stock selection. The strategy is to buy a specific stock as a long position and then short other stocks. By buying those "undervalued" stocks and shorting those "overvalued" stocks, no matter what the market situation is, we are expected to profit from it. Therefore, Jones Fund's portfolio is divided into two parts with opposite nature: one part of the stock returns when the market is bullish, and the other part returns when the market falls. This is the "hedge" method of "hedge fund". Although Jones thinks that stock selection is more important than timing, he still increases or decreases the net exposure risk of his portfolio according to his own market forecast. Because the long-term trend of stock price is upward, Jones investment is generally a "net long position".
What will happen after adding financial derivatives such as options? Let's give another example. If the current price of a company's stock is 150 yuan, it is estimated that it can appreciate to 170 yuan by the end of the month. The traditional way is to invest in the company's stock and pay 150 yuan. Once you make a profit in 20 yuan, the profit-cost ratio is 13.3%. However, if you use options, you can only use 5 yuan's margin (current share price) to buy a company call option with the market price of 150 yuan this month. If the company's share price rises to 170 yuan at the end of the month, you can earn 20 yuan per share, minus the 5 yuan paid by the margin, and the net profit is 15 yuan (not counting the handling fee for simplicity), that is, at the cost of 5 yuan per share.
It can be seen that if derivatives are used properly, they can get more profits at lower cost, just like the lever principle in physics, and lift the heavy objects close to the fulcrum with less force at the action point far from the fulcrum. Financial economists call it leverage. In this case, if it is not for hedging (that is, it is actually not hedging), but purely for the trend of the market, gambling with leverage, once it is done right, of course, will gain huge benefits, but the risk is also great. Once you miss, the loss will be amplified by leverage. The American Long-term Capital Management Fund (LTCM) secured its own funds of 2.2 billion US dollars, with loans of 654.38+02.5 billion US dollars and total assets of over 654.38+02 billion US dollars. The market value of all kinds of securities involved in its financial products exceeds one trillion US dollars, and the leverage ratio reaches 56.8. As long as there is a risk of one thousandth, it is doomed.
3. Hedge fund category (strategic definition)
Mar/Hedge classifies hedge funds into eight categories according to the fund manager's report:
1. Macro fund: operate according to the changes of global economic situation reflected by stock price, foreign exchange and interest rate.
2. Global funds: investing in emerging markets or some specific regions of the world, although operating according to the trend of a specific market like macro funds, they prefer to choose stocks with bullish market conditions in a single market and are not interested in index derivatives such as macro funds;
3. Only multi-fund: The operation structure of traditional equity funds is similar to that of hedge funds, that is, incentive commission and leverage are adopted.
4. Market neutral funds: reduce market risk by hedging long and short positions. In this sense, their investment philosophy is closest to that of early hedge funds (such as Jones Fund). Such funds include convertible arbitrage funds; Funds that arbitrage stocks and futures; Or a fund that operates according to the bond market yield curve;
5. Sector hedge funds: investing in various industries, mainly including: health care industry, financial services industry, food and beverage industry, media communication industry, natural resources industry, oil and gas industry, real estate industry, science and technology, transportation and public utilities;
6. dedicated short sales Fund: Borrow securities that they judge as "overvalued" from brokers and sell them in the market so that they can buy them back to brokers at a lower price in the future. Investors are usually those who want to hedge traditional long portfolios or hold positions in bear markets;
7. Event-driven fund: The main purpose of investment is to take advantage of events that are regarded as special circumstances. Including non-performing securities funds, risk arbitrage funds and so on.
8. Funds of funds: Allocate portfolios to hedge funds, sometimes using leverage.
American Pioneer Hedge Fund Research Company (1998) classifies hedge funds into 15 categories:
1, convertible arbitrage) fund: refers to a portfolio that buys convertible securities (usually convertible bonds) and hedges the risk of stocks by short selling the underlying common stock.
2. Non-performing securities funds: investing in and possibly short-selling corporate securities that have been or are expected to be adversely affected by the environment. Including restructuring, bankruptcy, sluggish business and other corporate restructuring. Fund managers use standard & poor's put option or put option spread to hedge the market.
3. Emerging market funds: corporate securities or national bonds invested in developing countries or "emerging" countries. Mainly to be long.
4. Stock hedge funds: Do more stocks and short other stocks or/and stock index options at any time.
5. Stock market neutral funds: gain profits by using the invalid pricing between related stocks and securities, and reduce market risks through the combination of long and short operations.
6. Non-hedging of stocks: Although the fund has the ability to hedge by short selling stocks and/or stock index options, it mainly holds long positions in stocks. Such funds are called "stock pickers".
7. Event-driven fund: also known as "company life cycle" investment. The Fund invests in opportunities arising from major trading events, such as mergers and acquisitions, bankruptcy reorganization, asset reorganization and stock repurchase.
8. Fixed-income funds refer to funds that invest in fixed-income securities. Including arbitrage funds, convertible bonds funds, diversified funds, high-yield funds, mortgage endorsement funds and so on.
9. Macro: refers to a large number of directional and non-hedging transactions based on the analysis of macro and financial environment, directly on the expected price changes of stock market, interest rate, foreign exchange and physical objects.
10, market opportunity: buy investment products with an upward trend and sell investment products with a downward trend. Funds are mainly transactions between funds and money markets.
1 1. merger arbitrage: sometimes called risk arbitrage, including investing in event-driven environments, such as leveraged buyouts, mergers and hostile takeovers.
12, relative value arbitrage: trying to make use of the pricing differences between various investment products such as stocks, bonds, options and futures to make profits.
13. departmental funds: funds invested in various industries.
14. short selling: including selling securities that do not belong to the seller, is a technology used to take advantage of the expected price decline.
15, Funds in Funds: multiple managers or management accounts investing in funds. This strategy involves multiple asset portfolios of managers, and the goal is to significantly reduce the risk or risk fluctuation of a single manager's investment.
Although there are many kinds of hedge funds, generally speaking, there are two main categories.
One is macro hedge fund, and the most famous one is Soros's quantum fund. Many people think that macro hedge funds are the most vicious funds with the greatest risks. In fact, macro hedge funds are not the most risky, and generally only use 4-7 times leverage. Although macro hedge funds pursue diversification of investment strategies, they still have several common characteristics:
A. take advantage of macroeconomic instability in various countries. Look for countries whose macroeconomic variables deviate from stable values. When these variables are unstable, their asset prices and related profits will fluctuate greatly. This kind of foundation has taken considerable risks in order to have considerable returns.
Managers are particularly willing to make investments with zero risk of losing a lot of capital. For example 1997 Asian financial crisis, investors judged that the Thai baht would depreciate. Although they can't accurately predict the specific date of depreciation, they can conclude that it will not appreciate, so they dare to invest boldly.
C. When the financing cost is low, it is most likely to buy in large quantities. Cheap financing makes them dare to buy and hold positions in large quantities, even if they are not sure when the event will happen.
D. managers are very interested in the liquid market. In the mobile market, they can make large transactions at low cost. However, in emerging markets, limited liquidity and limited tradable scale have certain constraints on macro hedge funds and other investors trying to open positions. Because emerging markets impose capital controls or restrictions on domestic banks that do business with overseas counterparts, it is difficult for hedge funds to manipulate the market. Because it is impossible to invest anonymously in a small and illiquid market, managers are also worried that they will be seen as counterparties to government or central bank transactions.
The other is the relative value fund, which invests in the relative prices of closely related securities (such as treasury bills and bonds). Unlike macro hedge funds, it generally does not bear the risk of market fluctuations. However, because the spread between related securities is usually very small, you can't get high returns without leverage effect, so relative value funds tend to use high leverage than macro hedge funds, so the risk is greater. The most famous relative value fund is LTCM. Meriwether, the president of LTCM, believes in the theory of "the differences between various bonds will be born and die naturally", that is, under the influence of the market, the unreasonable differences between bonds will eventually disappear, so if we have an insight into the opportunities, we can use the differences to make profits. But the difference between bonds is so small that you have to take the risk of making money with high leverage. LTCM has been betting on the European bond market that "before the introduction of the euro, the interest difference between EU countries will gradually narrow", because Germany and Italy are the first members of the euro, and Greece also announced its participation in the European single currency union in May this year, so LTCM holds a large number of positions in Italian, Greek government bonds and Danish mortgage bonds, and also holds a large number of short positions in German government bonds. At the same time, in the US bond market, LTCM's arbitrage portfolio is to buy mortgage bonds and sell US Treasury bonds. 1On August 4th, 998, the Russian government ordered to stop the trading of government bonds, which led to a sharp drop in bonds in emerging markets, and a large number of foreign investors fled, and regarded the high-quality bond markets in Germany and the United States as safe islands. As a result, stimulated by the stock market correction, the prices of German and American government bonds hit record highs, while the bond market in emerging markets plummeted and the spreads between German and American bonds and other bonds widened. From 1998 to August, the interest rate of Italian 10-year bonds was A 1 higher than that of German 10-year bonds, and the fluctuation basically remained between 0.20 and 0.32%. After Russia suspended the trading of national debt, the value of A 1 rose rapidly, reaching a new high of 0.57% 1 1 at the end of August. In September, A 1 changed repeatedly, but it was always at a high level of 0.45%. It even closed at 0.47% on September 28. The increase of A 1 means that LTCM's portfolio of "buying Italian and Greek government bonds and selling German government bonds" failed (the loss of Greek government bonds is the same as that of Italian government bonds). At the same time, a large number of Russian government bonds became waste paper because they stopped trading; Danish mortgage bonds are naturally unable to escape the decline. In the United States, municipal bond trading is extremely hot, and the interest rate of national debt has gone down and up. Since August 1998 and 1, the market interest rate has risen sharply compared with the value A2 in 10, which is higher than the debt interest. On August 2 1 day, the American stock market plummeted, and the Dow Jones industrial average fell by 5 12 points. At the same time, the selling pressure of American corporate bonds is in sharp contrast with the strong buying of national debt. The interest rate of treasury bonds has been pushed to a 29-year low, and LTCM has been "forced" to flee from the short position of US Treasury bonds. As a result, LTCM's bond portfolio in European and American bond markets suffered huge losses. At the end of September, the company's net asset value fell by 78% to only $500 million, and it was on the verge of bankruptcy.