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| Hedge Funds tend to be classified according to the markets they invest in or the strategies they employ. There is no official classification and the groupings tend to emerge once a large enough number of similar hedge funds are established. |
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ANALYST
This is a job title given to junior staff who have been able to join the first rank of a hedge fund within the front office. It is also used to describe a staff member who has to gather any kind of financial information and find a use that can be profitable for the firm.
ASSOCIATE
This is a job title term for junior level members of any hedge fund or private equity fund. Back office or support people also use this term within their career direction despite not being in the front office.
COLLATERALIZED DEBT OBLIGATIONS
CDO transactions are debt that is repackaged into a more diversified basket of diversified debt. This is often put into first to default and second to default types, the two main kinds.
CONVERTIBLE ARBITRAGE
Purchase convertible securities and short the underlying equities in order to profit from mispricing between the two.
CREDIT DERIVATIVES
These are a group of fixed income or debt derivative products. They are popular with CB arbitrage hedge funds, and include CDS, CLN, CDO, FTD and STD transactions.
CREDIT DEFAULT SWAPS
CDS are transactions using credit derivatives that are typically playing the credit spread below two corporate issuer names.
CREDIT LINKED NOTES
CLN transactions are driven by investment banks in order to bring liquidity to weak corporate companies with weak balance sheets.
DISTRESSED SECURITIES
Securities of companies in reorganization and/or bankruptcy, ranging from senior secured debt (low-risk) to common stock (high risk)The grade level is below the high yield level and is considered below D grade by ratings agencies
EVENT-DRIVEN
Investment strategy is follows events that are seen as special situations or opportunities to capitalize from price fluctuations
FIXED INCOME ARBITRAGE
Purchase bonds and short instruments that replicate bond. Strategy aims to profit from mispricing between the two sides.
FUND OF FUNDS
Pooled capital is invested in a variety of funds diversifying risk across investment styles and return targets as well as offering investors ability to be part of funds with higher minimum investment amounts than they have
GLOBAL INTERNATIONAL
Focuses on ex-USA global economic change. More stock-pickers in favoured markets so bottom-up-oriented and tend not to use index derivatives as much as macro funds.
GLOBAL MACRO
Opportunistic, using leverage and derivatives to increase and enhance positions - the classic Soros type strategy with variable timelines from less than a month to over a year, profiting wherever an opening is spotted to create value.
HIGH YIELD
This is a term for high interest rate bonds that are below investment grade but not distressed. This bond rating level is typically starts at double BB and ends at D grade.
LONG-ONLY LEVERAGED
A traditional equity fund structured like a hedge fund in that it will use leverage to maximize trading ability and will charge a performance fee for the manager.
LONG/SHORT
Net exposure to market risk is reduced by having equal allocations on the long and short sides of the market
MARKET NEUTRAL
The theory is to neutralise market risk at any one time, the reality is more a large reduction in market risk. This is done by building positions of opposite and equal size or utilizing derivatives to offset downside risk.
PARTNER
This is a job title given to a hedge fund member who is an owner of the firm, not just an employee. As a partner of the firm, this owner may not only take a large bonus taken from the performance fee share of the firm, but also from the management fee share as well.
PIPEs
Private Investment into Public Equities are direct buyer to seller transactions that are not public or "in the market". They often involved large blocks of stock, often by a long term investor or founding owner. As they are private, they are not announced and the profits that they generate, even when huge, are never disclosed.
PRINCIPAL
This is a job title often given to a senior member of a hedge fund before becoming a partner. Within some European firms, it is the equal to a director job title.
REGIONAL - EMERGING
Focuses on less mature financial markets. The difficulty here is the inability to short sell in most emerging markets which forces managers to go to cash or change markets as long positions turn unprofitable.
REGIONAL - ESTABLISHED
Focuses on opportunities in established markets such as USA, Europe and Japan.
RISK ARBITRAGE
Manager simultaneously buys stock in a target company and sells stock in its acquirers. The trade depends on the takeover being completed. Reverse positions on takeover failure are also sometimes taken.
SECTOR
Investment in particular economic sectors and/or industries. Focus can vary between large to micro cap and the approach can be fundamental, technical, opportunistic or bottom-down.
SHORT-SELLERS
Thinking that the overvalued stocks will fall, a hedge fund borrows stock and sells it, hoping to buy it back at a lower price. Can be used to hedge long-only portfolios.
SPECIAL SITUATIONS
This is often an opportunistic action based on an unexpected event or opportunity. News event driven actions can involve private placement transactions. These details are often not "in the market" and therefore not well known to any but the buyer and the seller.
STOCK ARBITRAGE
Purchase basket of stocks and sell short stock index futures contract, or reverse
VALUE INVESTING
An investment style which favors good stocks at great prices over great stocks at good prices. Utilizes such valuation measures as price to book ratio, price/earnings ratio and yield.
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