Are hedge funds suitable for retail investors?
There are many different reasons that mankind save and invest for. Generally, pension fund is the best choice for investors who are not keen to take risks. The pension fund is by far the highest number of investment that is low risk for many people. However, the pension fund is low return as well. “At annuity rate 8% of per annum (p.a.), a pension of £20,000 a year requires a pension fund of £250,000” (Redhead, 2008:1).
In 1949, the first hedge fund was created by Alfred Jones. However, over the past 5 years, the expansion of the hedge funds is really incredible. According to the published statement, there was an increase in the number of hedge funds from 1,435 to 2,073 in 2005. Furthermore, in globally, the estimation of hedge funds is around 12,000 in 2006 (Strachman, 2007).
Making a great deal of return in every market is an objective of hedge funds, that being able to make profit in any conditions whether positive, negative or stable. Hedge funds are usually a small private group which is suitable for wealthy people who accept high risk and keen to accept limitless liabilities for losses (Liang, 1999). The investment skills of the hedge funds managers may relate to the performance of hedge funds rather than market performance. Hedge funds use flexibility of investment strategy and style and also seek optimistic profits with irrespective to the way of markets. Short-selling, leverage and derivatives are often used by the managers of hedge fund. Flexibility, self-rule with admiration their investment plans and secrecy are desired by the most of hedge funds managers (Redhead, 2008:351). Shleifer and Vishny (1997) mentioned that the investors, invested in hedge funds, who ign...
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...ured by kurtosis and skewness“(Redhead, 2008: 356).
Gregoriou (2002) achieved with a survival study of hedge funds. It evaluates the possible life of whole and surely looks for the affected factors of the length of its life. He estimated that the mean life of them was 5.5 years. It also has several related factors which linked with long life such as large size, high returns low leverage, and low minimum purchase requirements. Because of poor performance was major cause to make the hedge funds be defunct initially. Baquero et al. (2005) also informed that great hedge funds with high returns were a reduced amount of result probable to pay a debt. As a result, investors who are investing with the hedge fund should deeply learn and concentrate on information of hedge funds’ life because the funds cannot be withdrawn throughout investment (Redhead, 2008:355).
Can We Keep Our Promises? The purpose of this paper is to provide a summary of the article called “Can We Keep Our Promises?” by Robert D. Arnott, and to help better understand the three key risks facing each investor. Robert Arnott describes risk and return as “having two sides of the same coin” meaning risk is inseparable from return. Arnott points out the most important risks that are faced by managers of company pension plans: underperforming other corporate pension funds (their peers), losing money (mostly associated with portfolio standard deviation or volatility), and underperforming the values of pension obligations and therefore losing actuarial ground.
You might be tempted to dip into your retirement fund for a major purchase, find the will to resist. You’ll pay extra fees and taxes, and you are robbing your future self. If you leave it alone, your money will continue to grow year after year. Your gains can be reinvested and you’ll earn more than you would have with just a small chunk of
Long-Term Capital Management was a hedge fund company founded by John Meriwether in 1994, in cooperation with Nobel Prize in economics winners Myron Scholes and Robert Merton who resided on its board.[1] Hedge funds are essentially large, unregulated, private investment pools for wealthy individuals and institutions. They are not limited by the portfolio composition and leverage (how much they borrow compared with their capital) restrictions put on other types of investment vehicles.[2] This company had developed a sophisticated computer model to take advantage of arbitrage deals usually with U.S., Japanese, and European sovereign bonds.
Mutual funds were long considered one of the best available easy-to-invest instruments that minimized risk and maximized returns. In the 80’s and 90’s, the US financial markets made trillions of dollars with the mutual fund structure. The funds, especially the most actively managed ones, were expected to outperform the market index in the long run. However, with expense ratios ranging as high as 1.5% to 2.5%, the funds underperformed the index by the amount of their expense ratio.
The Financial Crisis of 2007-2009 was one of the hardest financial times in the United States since the Great Depression. This was a time where many financials institutions failed, housing markets collapsed, and when banks had to be bailed out by the government. This caused the unemployment rates to increase, homes to be foreclosed, and the interest rates to fall. With all of these different systems failing, it raised concerns for many investors if their money was safe in Money Market Mutual Funds.
However, there is still a significant degree of uncertainty as to the effectiveness of one strategy over another amongst institutional investors and scholars alike. The vast majority of experienced investors believe that diversification, patience, and value are the three columns of successful investing. On the other hand, many researchers are still in disagreement about how viable other strategies such as growth, short-term and concentrated investing can be. Do all successful investors share this common thread of patience, value, and diversification in their investments or are there a plethora of investing techniques that investors utilize to achieve
There are many different ways to save money and there are different things to save for. A savings plan for an immediate want is apparently different than a savings strategy for retirement. One may choose to select stocks, bonds, or mutual funds for a savings strategy, however, my personal choice is to invest in bonds first, then mutual funds.
This paper will serve as a discussion on the topic of investment banking. In this paper the author includes various articles and thoughts that help to understand the background and principle of investment banking. This discourse will attempt to address this issue through explaining what investment banking is, introducing major investment bankers, and how investment banking affects our globally economy. Investment Banking Defined Investopedia (2008) stated this definition about investment banking, “A specific division of banking related to the creation of capital for other companies. Investment banks underwrite new debt and equity securities for all types of corporations.
William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998
As an investor with several types of securities, I am looking for long-term stability towards a retirement fund. The combination of several different stocks and mutual funds allows for the safety of the investments. By investing long-term in different accounts, I have the ability to gain more in the long-run with less risk of not lose all my savings on one investment.
When a Fortune magazine article highlighted a mysterious investment that exceeded every mutual fund on the market by double digits over the past year and even higher double digits throughout the past five years, the hedge fund business was created. There were just about 140 hedge funds in effect by 1968. In a surprising turn, many funds were withdrawn from Jones’ strategy and chose to charter in riskier gimmick backed on long-term leverage instead of focusing on stock picking coupled with hedging. These strategies led to cumbersome losses in 1969-1970 and between 1973-197...
... the public and private sector. It uses both the weak form and semi strong from to make decisions. When an investor is given both public and private information the investor would not be able to profit about the average investor even if he was provided with new information at any given time. These investors are given name such as insiders, exchange specialist, analyst and money mangers. Insiders are senior managers that have access to inside information of that company. The security exchange commission prohibits that allow of inside information use to achieve abnormal returns on investments. An exchange specialist can achieve above average returns with specific order information on a specific equity. Analysts can analyze whether an analyst opinion can help an investor achieve above average returns. Institutional money mangers work handle mutual funds and pensions.
The stock market is an essential part of a free-market economy, such as America’s. This is because it provides companies the capital they need in exchange for giving away small parts of ownership in their company to investors. The stock market works by letting different companies sell stocks to gain capital, meaning they sell shares of their company through an exchange system in order to make more money. Stocks represent a small amount of ownership in a company. The more stocks a person owns, the more ownership they have of that company. Stocks also represent shares in a company, which are equal parts in which the company’s capital is divided, entitling a shareholder to a portion of the company’s profits. Lastly, all of the buying and selling of stocks happens at an exchange. An exchange is a system or market in which stocks can be bought and sold within or between countries. All of these aspects together create the stock market.
Our understanding and the concept of investment in behavioural finance combines economics and psychology to analyse how and why investors make final decision. As an investor one’s decision to invest is fully influence by different type of attitudes of behavioural and psychological ( Ricciardi & Simon, 2000). Yet, in order to maximize their financial goal, investors must have a good investment planning. Furthermore , to gain a good investment planning , there must be a good decision making among investors. They have to choose the right investment plan I order to manage the resources for different type of investments not only to gain profit wise but also to avoid the risk that occur from investment.
This paper will define and discuss five financial theories and how they impact business decisions made by financial managers. The theories will be the Modern Portfolio Theory, Tobin Separation Theorem, Equilibrium Theory, Arbitrage Pricing Theory (APT), and the Efficient Markets Hypothesis.