Hedge Funds: A Credit Perspective
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A two day intensive workshop offering an in depth structured approach to the analysis of hedge funds and alternative investment strategies. The workshop takes a credit focus for bankers and analysts but is also appropriate for a wider audience who need to understand the key risk issues of the hedge fund industry.
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Further Details
COURSE OBJECTIVES
The two day workshop offers a structured analytic framework for the credit analysis of hedge and other unregulated funds.
Specifically participants will be equipped to:
Distinguish the risk profile of a fund’s investment strategy, structure, leverage and liquidity
Apply financial analytic tools used to benchmark the performance and risk profile of a fund
Identify the due diligence required for the fund manager’s expertise investment process risk management and controls
Evaluate the structural risks and mitigants of exposures to funds
TARGET AUDIENCE
The workshop is targeted at an intermediate level for credit analysts but is also appropriate for a wider audience of risk managers, bankers, regulators and other professionals who need to understand the key risk issues of the hedge fund industry. Participants should have a reasonable understanding of investment markets and financial products.
This workshop is complementary to the one day workshop: Regulated Funds and Fund Managers. Participants may also be interested in attending Credit Risk in Derivative Products.
FitchTraining offers programmes at an intermediate level and advanced level of continuing education. Although no prerequisite courses or experience is required to participate in this programme, working knowledge of financial statement analysis is required, as well as prior knowledge of the programme topic.
CONTENT
INDUSTRY OVERVIEW
Background
History & growth of hedge funds
Role of hedge funds in financial markets
Investors - evolving investor base
Features of unregulated funds:
Hedge funds, managed accounts, certain closed ended funds, fund of funds, master feeders, private equity etc.
Legal status - partnerships, corporations, managed accounts & etc.
Fee structures - management & performance; high water marks
Investor redemption terms-lockups, notice periods, frequency
Funds of funds & other structured products
Jurisdiction - offshore registrations, listings, fund manager domicile.
Goals
Absolute versus benchmarked returns
Alpha versus beta; portable alpha
Correlations
ANALYTIC OVERVIEW
Structured approach to analysis
Purpose of transaction & sources of payback - Who is the counterparty? What assets or derivatives are being financed? How will the transaction be settled or the debt repaid at maturity?
Risk analysis - orientation of fund, strategy, financials & key parties
Structure - risks & mitigants of the transaction
FUND ANALYSIS
Key parties
Roles & responsibilities of various parties: manager, advisers, administrator, prime broker, custodian etc
Prime brokers - impact of relationship on risk profile
Strategies & investment practices
Techniques to achieve high risk adjusted returns: leverage, derivatives & short selling
Fund policies, practices & restrictions
Risk profile of different strategies
Directional Strategies
Global macro
Managed futures
Dedicated short bias
Emerging markets
Relative value strategies
Convertible arbitrage
Equity market neutral
Long/short equity
Fixed income arbitrage
Event-driven
Distressed
Risk arbitrage
Multi strategy funds
Pitfalls of different strategies - examples of where they can go wrong
Financial analysis
“S”: Size - reviewing size, diversification & market position of fund
“M”: Market risk - volatility measures – st&ard deviation, correlations, VaR, stress simulations, concentrations etc.
“A”: Asset quality - liquidity &valuations
“L”: Liquidity - redemption risk & financing arrangements
“L”: Leverage - gross & net leverage calculations, limitations of leverage calculations
“P”: Performance - bench marking performance against indices & evaluating past performance; measuring risk & performance – Sharpe & Sortino ratios; peak to trough drawdown
Case study - Importance & limitations of performance measures
Early warning signals
Summary of major failures & causes
Common themes
Case study - Long Term Capital Management & Amaranth Advisors
FUND MANAGER
Due diligence
Key issues - experience levels; size, affiliation
Sustainability of business model
Regulation & supervision, where appropriate
Risk management
Investment process
Operational & credit risk
Market risk control - appropriate limit & control structures for different strategies
STRUCTURE
Structured approach
Using the purpose payback model to evaluate transactions
Types of risk when dealing with funds - credit, market, operational, reputation
Exposure profile - assessing the appropriateness of the structure in terms of amount, maturity etc.
Ranking - establishing & maintaining a senior position
Pricing - evaluating the risk ~ return profile of the transaction
Focus on safeguards
Types - collateral, unsecured thresholds, covenants, break clauses, NAV triggers, NAV floor, cross default
Collateralisation of trading transactions - measuring & margining exposure
Portfolio margining
Legal documentation - ISDA, prime brokerage & repurchase agreements
CASE STUDY
Perform a complete analysis & risk rating of a new hedge fund counterparty
Recommend how proposed transactions should be structured
This Training Course is taught in classrooms in the following locations:
London SW
Information provided is for information purposes only and no guarantees are made with regards to accuracy. It is advised that all details are checked prior to making a booking. Contents © 1999 - 2012. All rights reserved.
