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Hedge Funds
as a business
Disclaimer
This presentation is for information purposes only and does not constitute an offer to purchase securities
or a...
Executive Summary
Hedge fund is private investment vehicle, a business:
-Audited, legally protected structure with alignme...
General Information about HFs
-1923, first notice, Graham, “share in the business”

-1949, second notice, Alfred Jones, re...
Hedge Fund Assets, Flows, Count

5
Typical organizational structure of HF

6
Risk-adjusted return
Expected return

Er 

E


Expected risk (vol, std.dev)
7
What is an asset (class)?

Liquidity?

Transparency?

Hidden risk?

Expected Return, %

Money can be allocated to generate...
Pyramid of yearly returns

$2 500 000 000 000
~10 000 funds

9
Pyramid of yearly returns

$2 500 000 000 000
~10 000 funds

10
Pyramid of yearly returns

$2 500 000 000 000
~10 000 funds

11
Pyramid of yearly returns

$2 500 000 000 000
~10 000 funds

Around 5000 funds are
born and die every 3 years
12
Hedge Fund Strategies
Event Driven
waiting for catalyst to put capital to work

Long/Short. Value. Activist.
buying “good”...
Hedge Fund Strategies
Relative Value
M&A deals, arbitrage, convertibles etc

Global Macro
Interest rates
currencies

deriv...
Different strategies in one opportunity

15
Successful business managers
Carl Icahn
AUM: $24B
CAGR: 24%

Daniel Loeb
AUM: $14B
CAGR: 23%

Richard Chilton
AUM: $9B
CAG...
$1,1 T
Equity
Value
Catalyst
~10%
17
Distribution by strategy. Q4 2013

$2 500 000 000 000
~10 000 funds

18
Investor’s base
$1,7T
$2 500 000 000 000
~10 000 funds

19
Returns are enhanced by HF allocation

20
Correlation

21
Comparison to other assets

~9%

~6%
~4%

22
Classical assets historical performance

23
GS HF “VIP” LIST OUTPERFORMANCE vs S&P500
13%

13%

11%

11%
9%

8%

8%

7%

6%

5%

5%

9%
5%

4%

3%
1%

1%

1%
-1%

0%
...
GS HF CONCENTRATED LIST OUTPERFORMANCE
50%

45%

40%

30%
18%

20%
11%

10%

6%

3%

0%
0%

-10%
-13%

-20%

-30%

-22%

2...
Big Trend1: Farm Land

26
% of total investments in fixed assets

Big Trend2: Software

27
Big Trend3: U.S. Reindustrialization

28
Priceline (booking.com) buys Kayak
Price per share (euro)

30
25
20
15
10

5
28/04/2010

28/04/2011

28/04/2012
Amadeus Ho...
Shareholders file lawsuit against management
10

Price per share ($)

9
8
7
6

5
4
3
2
1

0
26/09/2013

26/10/2013
Violin ...
Hedge Funds: Conclusions
World Standard of competition
Creating “Benchmark” prices
Exclusive ability to “join” hot
busines...
32
Questions and Answers
hedge funds
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hedge funds

hedge funds as a business, very general overview

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hedge funds

  1. 1. Hedge Funds as a business
  2. 2. Disclaimer This presentation is for information purposes only and does not constitute an offer to purchase securities or an interest in any Hedge Fund. Nothing herein should be construed as investment advice, an opinion regarding the appropriateness or suitability of any investment, a recommendation or an offer or solicitation for the purchase or sale of any security or the Funds, nor an inducement or solicitation of any type. No representation is made that the objectives or goals of the Funds will be met or that any particular investment that they make will be profitable or will not incur losses. Presenter shall have no liability for investment decisions based upon, or the results obtained from, the information provided herein. Examples of trades are provided for illustrative purposes only and results may not be replicated. Past performance is no guarantee of future results. Investing in hedge funds and trading in commodities is very risky; investors may lose their entire investment. Performance information is generated by the Fund’s administrator and audited annually. 2
  3. 3. Executive Summary Hedge fund is private investment vehicle, a business: -Audited, legally protected structure with alignment of interests (SPV) -Objective is to offer absolute return ~20%/year, regardless of market -World has ~9000 funds -In 1990 AUM = $39B -2013 asset class AUM stands at $2,5T -New capital/reinvestments 40%/60% -65% of investors are institutions (pensions etc) -On average, HFs decrease volatility by 10% 3
  4. 4. General Information about HFs -1923, first notice, Graham, “share in the business” -1949, second notice, Alfred Jones, real hedge -Allignment of interests between investors and manager -Goal is to make 15-20% per year (~1,5% per month) for 20 years Net worth ~$11B Fund made $15B in 2007 This year Fund up ~30% Fund lost $1B June 2007 Donated >$1B - children Net worth ~$100M Net worth ~$23B Made $1B shorting GBP, THB, JPY Married Sep13 third time… Fund lost $6,5B, nat gas Banned from trading Charged $30M fine 4
  5. 5. Hedge Fund Assets, Flows, Count 5
  6. 6. Typical organizational structure of HF 6
  7. 7. Risk-adjusted return Expected return Er  E  Expected risk (vol, std.dev) 7
  8. 8. What is an asset (class)? Liquidity? Transparency? Hidden risk? Expected Return, % Money can be allocated to generate cashflow… into an asset Private Equity Hedge Funds Public Equity Fixed Income Real Estate Bank Account Scalability? Expected Risk, % 8
  9. 9. Pyramid of yearly returns $2 500 000 000 000 ~10 000 funds 9
  10. 10. Pyramid of yearly returns $2 500 000 000 000 ~10 000 funds 10
  11. 11. Pyramid of yearly returns $2 500 000 000 000 ~10 000 funds 11
  12. 12. Pyramid of yearly returns $2 500 000 000 000 ~10 000 funds Around 5000 funds are born and die every 3 years 12
  13. 13. Hedge Fund Strategies Event Driven waiting for catalyst to put capital to work Long/Short. Value. Activist. buying “good” companies and selling “bad” ones Emerging/Frontier Markets 13
  14. 14. Hedge Fund Strategies Relative Value M&A deals, arbitrage, convertibles etc Global Macro Interest rates currencies derivatives Commodity Trading Advisors (CTA) Real goods trading 14
  15. 15. Different strategies in one opportunity 15
  16. 16. Successful business managers Carl Icahn AUM: $24B CAGR: 24% Daniel Loeb AUM: $14B CAGR: 23% Richard Chilton AUM: $9B CAGR: 14% William Ackman AUM: $13B CAGR: 24% David Tepper AUM: $18B CAGR: 30% David Einhorn AUM: $5B CAGR: 25% Ray Dalio AUM: $14B CAGR: 20% Leon Black AUM: $9B CAGR: 32% Steven Cohen AUM: $7B CAGR: 27% 16
  17. 17. $1,1 T Equity Value Catalyst ~10% 17
  18. 18. Distribution by strategy. Q4 2013 $2 500 000 000 000 ~10 000 funds 18
  19. 19. Investor’s base $1,7T $2 500 000 000 000 ~10 000 funds 19
  20. 20. Returns are enhanced by HF allocation 20
  21. 21. Correlation 21
  22. 22. Comparison to other assets ~9% ~6% ~4% 22
  23. 23. Classical assets historical performance 23
  24. 24. GS HF “VIP” LIST OUTPERFORMANCE vs S&P500 13% 13% 11% 11% 9% 8% 8% 7% 6% 5% 5% 9% 5% 4% 3% 1% 1% 1% -1% 0% -2% -3% -5% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* outperfomance mean ex08 *as of 31 November
  25. 25. GS HF CONCENTRATED LIST OUTPERFORMANCE 50% 45% 40% 30% 18% 20% 11% 10% 6% 3% 0% 0% -10% -13% -20% -30% -22% 2007 outperfomance 2008 2009 mean 2010 2011 2012 2013* *as of 31 November
  26. 26. Big Trend1: Farm Land 26
  27. 27. % of total investments in fixed assets Big Trend2: Software 27
  28. 28. Big Trend3: U.S. Reindustrialization 28
  29. 29. Priceline (booking.com) buys Kayak Price per share (euro) 30 25 20 15 10 5 28/04/2010 28/04/2011 28/04/2012 Amadeus Holdings 28/04/2013
  30. 30. Shareholders file lawsuit against management 10 Price per share ($) 9 8 7 6 5 4 3 2 1 0 26/09/2013 26/10/2013 Violin Memory 26/11/2013
  31. 31. Hedge Funds: Conclusions World Standard of competition Creating “Benchmark” prices Exclusive ability to “join” hot business models Fast-fail type Outperforming long term by ~5% The most dynamic business. Ever. 31
  32. 32. 32
  33. 33. Questions and Answers

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