presentation of sapm

8/8/2019 Presentation of Sapm

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INTRODUCTIONHedge funds, including fund of funds are unregistered privateinvestment partnerships, funds or pools that may invest andtrade in many different markets, strategies and instruments(including securities, non-securities and derivatives) and are NOT subject to the same regulatory requirements as mutualfunds, including mutual fund requirements to provide certain

periodic and standardized pricing and valuation information toinvestors. Usually, hedge funds:A re organized as private investment partnerships or offshoreinvestment corporations;Use a wide variety of trading strategies involving position-taking in a range of markets;Pay performance fees to their managers; andHave an investor base comprising wealthy individuals andinstitutions and relatively high minimum investment limit.


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Domestic and Offshore Hedge FundD omestic hedge funds are usually organized (in US A ) aslimited partnerships to accommodate investors that are subjectto U.S. income taxation. Hedge funds may also take the formof limited liability companies (LLC) or business trusts.

Offshore funds generally attract investments of US. tax exemptentities, such as pension funds, charitable trusts, foundationsand endowments, as well as non-U.S. residents. U.S. tax-exempt investors favour investments in offshore hedge funds because they may be subject to taxation if they invest indomestic limited partnership hedge funds. Offshore funds aretypically more liquid than domestic funds. Offshore hedgefunds are valued as N AV (net asset value), not as account balances, as domestic funds are valued.


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Different strategies a hedge fund uses to investtheir money

Event Driven:. Hedge funds that use an event driven strategygenerally invest in companies that are expecting a large impact onthe price of the stock over a short period of time.

Gl oba l macro funds that take long and short positions in major financial markets based on views influenced by economic trendsand events. Macro strategies do not focus on individual companies but rather focus primarily on profiting from shifts in global trends

Equity Market neutra l funds where the manager attempts tominimize (or significantly reduce) market risk. This approachminimizes inherent securities market risks by combining an arrayof long and short sales within the same industry, market, country.


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B enefits of Hedge Funds

Hedge funds can provide benefits to financial markets by contributingto market efficiency and enhance liquidity. Most hedge funds aims atreducing volatility and risk while offering high returns under differentmarket conditions.P ositive return- many hedge fund strategies have the ability to

generate positive return in both rising and falling equity and bondmarket.Idea l investment- hedge funds provide an ideal long term investmentsolution, eliminating the need to correctly time entry and exit frommarketB

etter diversification- Hedge fund can also serve as an important risk management tool for investors by providing valuable portfoliodiversification. Hedge fund strategies are typically designed to protectinvestment principal.W ide choice it provide investors with a wide choice of hedge fundstrategies to meet their investment objective.


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Market B enefits of Hedge Funds:

Hedge funds can provide benefits to financial markets bycontributing to market efficiency and enhance liquidity.

Hedge funds also provide liquidity to the capital markets by participating in the market.

Hedge funds play an important role in a financial systemwhere various risks are distributed across a variety of

innovative financial instruments.


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FeesA hedge fund manager will typically receive both a

management fee and a performance fee (also known as anincentive fee) from the fund. A typical manager may chargefees of "2 and 20", which refers to a management fee of 2% of the fund's net asset value each year and a performance fee of 20% of the fund's profit.Management feesA s with other investment funds , the management fee iscalculated as a percentage of the fund's net asset value .Management fees typically range from 1% to 4% per annum,with 2% being the standard figure. Management fees areusually expressed as an annual percentage but calculated and paid monthly or quarterly.


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P erformance feesPerformance fees (or "incentive fees") are one of the definingcharacteristics of hedge funds. The manager's performance feeis calculated as a percentage of the fund's profits, usuallycounting both realized and unrealized profits. In the businessmodels of most managers, the performance fee is largelyavailable for staff bonuses and so can be extremely lucrativefor managers who perform well. Several publications publishannual estimates of the earnings of top hedge fund managers.Typically, hedge funds charge 20% of returns as a performancefee. However, the range is wide with highly regarded

managers charging higher fees. For example Steven Cohen'sSA C Capital Partners charges a 35-50% performance fee,while Jim Simons' Medallion Fund charged a 45% performance fee.


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Hurd le ratesSome managers specify a hurdle rate, signifying that they willnot charge a performance fee until the fund's annualized performance exceeds a benchmark rate, such as T-bill yield,LIBOR or a fixed percentage. This links performance fees tothe ability of the manager to provide a higher return than analternative, usually lower risk, investment.

W ithdrawa l/ redemption feesSome funds charge investors a redemption fee (or "withdrawalfee" or "surrender charge") if they withdraw money from thefund. A redemption fee is often charged only during a specified period of time (typically one year) following the date of investment, or only to withdrawals representing a specified portion of an investment. The purpose of the fee is todiscourage short-term investment in the fund, thereby reducingturnover and allowing the use of more complex, illiquid or long-term strategies .


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CHARACTERSTICS OF HED G E FUND

Short selling- due to the nature of short selling, the losses thatcan be incurred on a losing bet are, in theory, limitless, unlessthe short position directly hedges a corresponding long position. Therefore, where a hedge fund uses short selling asan investment strategy rather than as a hedging strategy, it cansuffer very high losses if the market turns against it. Ordinaryfunds very rarely use short selling in this way.

App etite for risk - hedge funds are more likely than other typesof funds to take on underlying investments that carry highdegrees of risk, such as high yield bonds, distressed securities,

and collateralized debt obligations based on sub-primemortgages.


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Lac k of tr ans pa ren cy- hedge funds are secretive entities withfew public disclosure requirements. It can, therefore, bedifficult for an investor to assess trading strategies,diversification of the portfolio, and other factors relevant to aninvestment decision.

Lac k of regul a tion- hedge fund managers are, in some jurisdictions, not subject to as much oversight from financialregulators as regulated funds, and therefore some may carryundisclosed structural risks.


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Hedge fund structureThe fund itself has no employees and no assets other than itsinvestment portfolio and cash. The portfolio is managed by theinvestment manager, which is the actual business and hasemployees. A s well as the investment manager, the functionsof a hedge fund are delegated to a number of other service

providers. The most common service providers are:P rime broker prime brokerage services include lendingmoney, acting as counterparty to derivative contracts, lendingsecurities for the purpose of short selling, trade execution,clearing and settlement. Many prime brokers also providecustody services. Prime brokers are typically parts of largeinvestment banks.


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Administrator the administrator typically deals withthe issue and redemption of interests and shares,calculates the net asset value of the fund, and performsrelated back office functions. In some funds, particularlyin the U.S., some of these functions are performed by theinvestment manager, a practice that gives rise to a

potential conflict of interest inherent in having theinvestment manager both determine the N AV and benefitfrom its increase through performance fees. Outside of the U.S., regulations often require this role to be taken bya third party.Distributor - the distributor is responsible for marketingthe fund to potential investors. Frequently, this role istaken by the investment manager.


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High l ights of Regu latory Review

Hedge funds are a growing segment of asset managementindustry and increasingly becoming popular not only with highnet worth individual investors but also with institutionalinvestors including university funds, pension funds, insuranceand endowments.

Hedge funds, are sometimes perceived to be speculative andvolatile. However, not all funds exhibit such characteristics.

Hedge funds themselves are not registered in most of thedeveloped markets but investment managers/advisorsmanaging hedge funds could be registered as investmentadvisors under the relevant regulations. However, theregistration of the investment advisors does not necessarilyinvolve substantive supervision over the funds operations.


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Some jurisdictions are gradually moving towardsallowing the marketing of hedge fund and fund of funds

products to retail investors. Those jurisdictions havesimultaneously imposed disclosure requirements toensure that investors understand the complexity andassociated risk of investing in hedge funds.

Hedge funds in search of high returns are also investing inemerging markets. Realizing the growing importance of hedge funds, several emerging market regulators haveopened their markets to offshore hedge funds by providing authorization as registered foreign investors.

A ll hedge funds though are not regulated like mutualfunds, they are nevertheless subject to market abuse lawsand anti-money laundering procedures.


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Hedge Funds in IndiaW ith the notification of SEBI (Mutual Fund) Regulations

1993, the asset management business under private sector took its root in India. In the same year SEBI, also notifiedRegulations and Rules governing Portfolio Managers who pursuant to a contract or arrangement with clients, adviseclients or undertake the management of portfolio of securitiesor funds of the client.Recently, RBI through liberalized remittance scheme, allowedresident individuals to remit upto US $ 25,000 per year for anycurrent or capital account transaction. The liberalized scheme

will allow Indian individual investors to explore the possibilityof investing in offshore financial products.


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L IST OF HED G E FUNDS IN INDIA

HFG India continuum fund Avtaar investment Management India Investment AdvisorsFair ValueIndea Capital Pte. Ltd India capital fund Monsoon capital equity value fund

Karma capital management, LLC Atyant capital Atlantis India opportunities fund

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