Hedge Funds

COURSE CONTRIBUTION TO PROGRAM

Alternative investments such as Hedge Funds, Real Estate, Commodities or Private Markets are a critical component of modern capital markets and actually they do play a fundamental role in portfolio management. However they are often only vaguely understood by professionals and investors in general. Investor protection rules that limit publicity by partnerships have had the effect of characterizing hedge funds as secretive and opaque.
This course surveys a broad range of hedge fund trading strategies with an emphasis on understanding their fundamental investment process. Students will gain practical knowledge in regards to creating and implementing such trading strategies. There will be particular focus on the theoretical justification for the existence of inefficiencies or risk premium and the successful extraction of them.
The first part of this course will cover the most popular hedge funds strategies such as Long/Short, Event Driven (Distressed, Risk-Arbitrage), Equity Market Neutral, Statistical Arbitrage, Dedicated Short-Bias, Convertible Arbitrage, Emerging Markets, Fixed Income Arbitrage, Global Macro, Managed Futures, and Multi-Strategy. Particular attention will be placed on understanding the mechanics of the alpha-extraction methodology.
The second part of the course will focus on the asset class per se discussing the main risk frameworks, the different economic paradigm hedge funds stemmed from, regulation and legislation framework, the main ratios and risk measures used in the hedge fund industry and the role hedge funds play in a portfolio context. This second part will close the course by taking a look at the main hedge funds biases and address the usual objections to invest in the asset class.
An example of the type of question that will be addressed in this course is: What are the main differences between a hedge fund and a long-only fund manager? Close attention to the hidden-risks and limitations associated with the implementation of such strategies will be highlighted throughout this course. Upon successful completion of this course, students should gain a firm understanding of the popular hedge fund trading strategies currently employed in the industry.
There will be two linked assignaments during the second part of the course:
In the first one students will participate in a simulation of a Global Investment Committee of a financial institution.
In the second one students will have the chance to show their progress in understanding the main concepts of portfolio management by working and competing amongs them in a portfolio simulation game using Bloomberg.
The major objective of both assignaments is to use the logic of financial theory to arrive at conclusions. There is not one absolutely right answer to a case in finance; different assumptions can lead to different solutions. While there are no "right? answers, there are good arguments and bad arguments. Along these lines students will be asked to make assumptions based on a particular scenario extracting consequences out of it. The rationale of these arguments together with the logics behind the assumptions will be the base to grade both assignaments.
In addition to set lectures, video and interactive portfolio projects students will also meet practitioners in hedge funds selection and Trading strategies.

Course Learning Objectives

Upon successful completion of this course, students should gain a firm understanding of the popular hedge fund trading strategies currently employed in the industry along with a backgroung of the main ris/reward magnitudes used in the industry.
This course will provide students with the necessary and essential tools to build and maintain a portfolio understanding the dynamics between the different components. You will learn about asset classes, asset allocation process, hedge fund strategies, how to position hedge funds within a portfolio context, financial products, behavioral finance, and useful resources such as Bloomberg. Students are expected also to improve their group-interaction skills by having to defend their investment thesis during the assignments.

CONTENT

1. HEDGE FUND DEFINITION AND INDUSTRY OVERVIEW
2. HEDGE FUNDS HISTORY
3. WHO IS WHO
4. HEDGE FUND STRATEGIES
5. LEGAL ENVIRONMENT
6. INDUSTRY PRESENTATIONS : MAN AHL , CAIA
7. RETURNS, RISKS AND HEDGE FUNDS
8. FUNDS OF HEDGE FUNDS AND DUE DILLIGENCE
9. OBJECTIONS TO HEDGE FUNDS

1. HEDGE FUND DEFINITION AND INDUSTRY OVERVIEW

2. HEDGE FUNDS HISTORY

3. WHO IS WHO

4. HEDGE FUND STRATEGIES

5. LEGAL ENVIRONMENT

6. INDUSTRY PRESENTATIONS : MAN AHL , CAIA

7. RETURNS, RISKS AND HEDGE FUNDS

8. FUNDS OF HEDGE FUNDS AND DUE DILLIGENCE

9. OBJECTIONS TO HEDGE FUNDS

Methodology

The workload distribution will consist of:

o Lectures.
o Practical and participative sessions
o Tutorials.

- There will be two linked assignments during the second part of the course:

In the first one students will participate in a simulation of a Global Investment Committee of a financial institution where -working in groups- they will be asked to build up an Strategy Asset Allocation using cash, fixed income, equities and alternative investments that will be tested using risk-reward measures.
In the second one students will have the chance to show their progress in understanding the main concepts of portfolio management by working and competing amongst them in a portfolio simulation game using Bloomberg. These portfolios will be built up using mutual funds, hedge funds and ETFs.
Students will be asked to make assumptions based on their own pre-defined economic scenario depending on a particular business cycle. Based on these assumptions students will have to build a comprehensive asset allocation and later on translate that particular asset allocation into a portfolio of securities. The elements to asses in these two assignments are the same: case construction, rationale and assumptions made. Under this scope students are expected to look at the risk/reward and correlation dynamics.

- Students are strongly advice to approach the subject with an open and flexible mind. We are not seeking the ultimate hedge fund portfolio but to look at the dynamics of portfolio construction and management from an "out of the box? perspective.

- What is expected from students/participants:

- A goal of this course is to provide students with the opportunity to learn how to best contribute to discussions about complex financial issues. Therefore, this class depends and thrives on class participation. It is an important and essential part of this course. Because so much learning in this course occurs in the classroom, it is important that you attend every class. Voluntary class participation is encouraged.
- Laptops/tablets are not expected to be used during the class unless it is required or indicated by the lecturer.
- Mobile phone and other devices should be switched off during the class hours.

Assessment criteria

.Course grade will be calculated using the following points:

Class pro-active participation and engagement: 10%
Assignments (2): 40% (20% each)
Final Exam: 50%

The exam will be closed book&notes, consisting on 15-30 multiple option answers test and 1-2 brief essays. The time to accomplish succesfully the final exam will be 120'. All the material reviewed during the course plus the assignments, articles and the presentations of the guest speakers will be subject to be tested.

In order to to pass the course, a minimum grade of 50% is required on both the final exam and the weighted average of the two assignments listed above. Specifically, if both the final exam mark and the weighted average are above 50%, then the weighted average becomes the final grade for the course. Otherwise, the final grade for the course will be the lower mark of the two.In case a retake exam is needed, the final course grade will be 100% determined by the retake exam mark.

Attendance is mandatory but in order to offer some relief for students who may get caught in occasional traffic delays, we will wait up to 10' minutes to begin the lecture. However, if you have an unexcused absence on a assignment date, the assignment will be scored as a zero. Also, you are kindly asked not to use your computer unless we are working on a problem or project that requires the use of the computer. You should bring your laptop to class.

Type:	OBL	Curs:	1	Period:	S semester
ECTS Credits:	3 ECTS

Hedge Funds (2225.YR.004823.2)

General information

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Prerequisites