PARITANTRA 2010

DYNAMICS OF HEDGE
FUNDS USING SYSTEMS
APPROACH

V. SRIDHAR & MAHIMA SHARMA

MBA- I YEAR
DEPTT. OF MANAGEMENT
 HEDGE FUNDS

• Pool of capital funds

• Professionally managed
• Privately organized
• Loosely regulated
• Performance fee to investment manager
 THE BASIC CONCEPT

FUND IS A POOL OF REDUCING

INVESTMENTS RISK
The shift in the preference of investors
globally……………

FUND

MUTUAL FUND

HEDGE FUND
 HEDGE FUND AS A SYSTEM

FF

FUNDS
STRATEGIES INVESTMENT
&
HIGHER
&
MANAGERIAL HEDGING RETURNS
SKILLS

FB

INPUT PROCESS OUTPUT

HEDGE FUND IS PRIMARILY A
SYSTEM OF STRATEGIES
STRATEGIES
SYSTEM
TACTICAL
TACTICAL

STRATEGIES
SYSTEM
TACTICAL
TACTICAL

EQUITY
STRATEGIES
SYSTEM
TACTICAL
TACTICAL

EQUITY
STRATEGIES
SYSTEM

EVENT
DRIVEN
 TACTICAL

EQUITY
STRATEGIES
SYSTEM

RELATIVE VALUE EVENT DRIVEN

ARBITRAGE
 TACTICAL

EQUITY
OTHERS
STRATEGIES
SYSTEM

RELATIVE VALUE
ARBITRAGE
EVENT DRIVEN
 THE SYSTEM IS ABOUT
SELECTION OF STRATEGY

MAIN
STRATEGY
 TACTICAL

OTHERS EQUITY
MAIN
STRATEGY

EVENT
R.V.A
DRIVEN
 TACTICAL

OTHERS EQUITY

EVENT
R.V.A
DRIVEN
 TACTICAL

OTHERS EQUITY

EVENT
R.V.A
DRIVEN
 TACTICAL

OTHERS EQUITY

EVENT
R.V.A
DRIVEN
 TACTICAL

OTHERS EQUITY

EVENT
R.V.A
DRIVEN
 TACTICAL

OTHERS EQUITY

EVENT
R.V.A
DRIVEN
 TACTICAL

OTHERS EQUITY

EVENT
R.V.A
DRIVEN
 A MIX OF ALL
STRATEGIES IS
ALSO
IMPLEMENTED
 TACTICAL

OTHERS EQUITY
MAIN
STRATEGY

EVENT
R.V.A
DRIVEN
THESE STRATEGIES CAN FURTHER BE
CLASSIFIED INTO
 TACTICAL

OTHERS EQUITY
MAIN
STRATEGY

EVENT
R.V.A
DRIVEN
 RISK ARBITRAGE

MULTI STRATEGY
DISTRESSED SECURITIES

CONVERTIBLE ARBITRAGE
GLOBAL MACRO
FIXED INCOME ARBITRAGE Strategies
EQUTIY MARKET MANAGED FUTURES
STRATEGIES
NEUTRAL SYSTEM

MULTI STRATEGY REGIONAL SECTORAL

FUNDS OF FUNDS
DEDICATED SHORT BIAS

GLOBAL EMERGING
 RISK ARBITRAGE

MULTI STRATEGY

DISTRESSED SECURITIES

CONVERTIBLE GLOBAL MACRO

CONVERTIBLE ARBITRAGE
ARBITRAGE
FIXED INCOME
FIXED INCOME ARBITRAGE MANAGED FUTURES
ARBITRAGE
EQUTIY MARKET
NEUTRAL
Strategies

REGIONAL SECTORAL

DEDICATED SHORT BIAS

MULTI STRATEGY GLOBAL EMERGING
FUNDS OF FUNDS
THE CHOICE
 RETURNS

VARIABLE

LOW

MODERATE

HIGH

VERY HIGH
 RISK
RETURNS
VARIABLE
VARIABLE
LOW
LOW
MODERATE
MODERATE
HIGH
HIGH
VERY HIGH
VERY HIGH
 RISK
RETURNS
VARIABLE
VARIABLE
LOW
LOW
MODERATE

MODERATE
HIGH
HIGH
VERY
HIGH
VERY
HIGH
 RISK
RETURNS
VARIABLE
VARIABLE
LOW
LOW
MODERATE

MODERATE
HIGH
HIGH
VERY
HIGH
VERY
HIGH

TACTICAL
EQUITY

OTHERS STRATEGIES
EVENT
DRIVEN

RISK VALUE
ARBITRAGE
 RISK
RETURNS
VARIABLE
VARIABLE
LOW
LOW
MODERATE
MODERATE
HIGH
HIGH
VERY HIGH
VERY HIGH

TACTICAL
EQUITY

OTHERS STRATEGIES
EVENT
DRIVEN

RISK VALUE
ARBITRAGE
THE VARIOUS COMBINATIONS
THAT CAN BE DRAWN
 RISK
RETURNS
VARIABLE
VARIABLE
LOW
LOW
MODERATE
MODERATE
HIGH
HIGH
VERY HIGH
VERY HIGH

TACTICAL
EQUITY

OTHERS STRATEGIES
EVENT
DRIVEN

RISK VALUE
ARBITRAGE
 RISK
RETURNS
VARIABLE
VARIABLE
LOW
LOW
MODERATE
MODERATE
HIGH
HIGH
VERY HIGH
VERY HIGH

TACTICAL
EQUITY

OTHERS STRATEGIES
EVENT
DRIVEN

RISK VALUE
ARBITRAGE
 RISK
RETURNS
VARIABLE
VARIABLE
LOW
LOW
MODERATE
MODERATE
HIGH
HIGH
VERY HIGH
VERY HIGH

TACTICAL
EQUITY

OTHERS STRATEGIES
EVENT
DRIVEN

RISK VALUE
ARBITRAGE
 RISK
RETURNS
VARIABLE
VARIABLE
LOW
LOW
MODERATE
MODERATE
HIGH
HIGH
VERY HIGH
VERY HIGH

TACTICAL
EQUITY

OTHERS STRATEGIES
EVENT
DRIVEN

RISK VALUE
ARBITRAGE
 RISK
RETURNS
VARIABLE
VARIABLE
LOW
LOW
MODERATE

MODERATE
HIGH
HIGH
VERY
HIGH
VERY
HIGH

TACTICAL
EQUITY

OTHERS STRATEGIES
EVENT
DRIVEN

RISK VALUE
ARBITRAGE
HEDGE FUNDS USING
SYSTEMS APPROACH
( CAUSAL LOOP )
 HEDGE FUNDS
AND
COMPUTATIONAL
INTELLIGENCE
( FUZZY LOGIC )
 SAMPLE FIS
INPUT VARIABLE 1 – RISK
INPUT VARIABLE 2 – RETURN

MF 1 - VERY HIGH, HIGH, MODERATE, LOW, VARIABLE

MF 2 - VERY HIGH, HIGH, MODERATE, LOW, VARIABLE

OMF – TACTICAL, EQUITY, EVENT DRIVEN, RVA, OTHERS

TOTAL NUMBER OF RULES = 25

 DEDICATION

WE WOULD LOVE TO DEDICATE OUR

WORK TO

THE SUPREME FATHER

 ACKNOWLEDGEMENTS
OUR PARENTS

OUR TEACHERS

OUR FRIENDS

LOVELY AUDIENCE

ORGANIZERS OF PARITANTRA 2010