Directory [Hidden] 1 Basic Connotation 2 Origin and Development 3 Operation 4 Famous Hedge Funds 4. 1 Quantum Fund 4.2 Tiger Fund 4.3 Other 5 Hedge Fund Investment Cases 5.1Kloc-0/992 Sniper Pound 5.2 Asian Financial Storm
[Editor] Basic connotation
People call financial futures and financial options financial derivatives, and they are usually used as a means to hedge and avoid risks in financial markets. With the passage of time, in the financial market, some fund organizations use financial derivatives to adopt various profit-oriented investment strategies. These fund organizations are called hedge funds. At present, hedge funds have long lost the connotation of risk hedging. On the contrary, it is generally believed that hedge funds are actually based on the latest investment theory and extremely complex financial market operation skills, making full use of the leverage of various financial derivatives to undertake high-risk and high-yield investment models.
[Editor] Origin and Development
The English name of Hedge Fund means "hedge fund", which originated in the United States in the early 1950s. At that time, the purpose of operation was to use financial derivatives such as futures and options, as well as the operating skills of short selling and risk hedging of different stocks, which could avoid and resolve investment risks to a certain extent. 1949 The first Jones hedge fund with limited cooperation in the world was born. Although hedge funds appeared in the 1950s, they did not attract much attention in the next thirty years. Until 1980s, with the development of financial liberalization, hedge funds had broader investment opportunities, and then entered a stage of rapid development. In 1990s, the global inflation threat gradually decreased, financial instruments became more mature and diversified, and hedge funds entered a stage of vigorous development. According to the Economist, from 1990 to 2000, more than 3,000 new hedge funds appeared in the United States and Britain. After 2002, the yield of hedge funds has declined, but the scale of hedge funds is still not small. According to the Financial Times' report on October 22nd, 2005, the total assets of global hedge funds have reached 1. 1 trillion dollars.
[Edit] operation
In the initial hedging operation, the fund manager buys a put option with a certain price and term after buying a stock. The utility of put option is that when the stock price falls below the option-limited price, the holder of seller option can sell his stock at the option-limited price, thus hedging the risk of stock decline. In another hedging operation, the fund manager first chooses a certain bullish industry, buys several high-quality stocks in this industry, and sells several inferior stocks in this industry at a certain proportion. The result of this combination is that if the industry is expected to perform well, the increase of high-quality stocks will exceed other stocks in the same industry, and the gain from buying high-quality stocks will be greater than the loss from shorting inferior stocks; If the expectation is wrong, the stocks of this industry will fall instead of rising, then the decline of the stocks of poor companies will be greater than that of high-quality stocks, and the profit of short selling will be higher than the loss caused by the decline of buying high-quality stocks. It is precisely because of this mode of operation that early hedge funds were regarded as a conservative investment strategy for fund management. But with the passage of time, people's understanding of the role of financial derivatives has gradually deepened. In recent years, hedge funds have been favored because of their ability to make money in a bear market. From 1999 to 2002, the average annual loss of ordinary Public Offering of Fund was 1 1.7%, while the average annual profit of hedge funds was 1 1.2%. There is a reason why hedge funds have achieved such impressive results, and their gains are not as easy as the outside world understands. Almost all hedge fund managers are excellent financial brokers.
Figure 1: price/transaction volume
The financial derivatives used by hedge funds (taking options as an example) have three characteristics: first, they can leverage larger transactions with less funds, which is called the magnification of hedge funds, which is generally 20 to 100 times; When the transaction volume is large enough, it can affect the price (see figure1); Secondly, according to Lorenz Glitz, because the buyer of the option contract has only rights but no obligations, that is, on the delivery date, if the exercise price of the option is unfavorable to the option holder, the holder can not perform it. This arrangement reduces the risk of option buyers, and at the same time induces people to make riskier investments (that is, speculation); Thirdly, according to John Hull, the greater the deviation between the exercise price of the option and the spot price of the asset (specific subject matter) of the option, the lower its own price, which brings convenience to the subsequent speculative activities of hedge funds.
After hedge fund managers discovered the above characteristics of financial derivatives, their hedge funds began to change their investment strategies. They changed the investment strategy of hedge trading to manipulate several related financial markets through a large number of transactions and profit from their price changes.
At present, there are more than 20 investment strategies commonly used by hedge funds. Its technology can be mainly divided into the following five types:
Long and short positions, that is, buying and selling stocks at the same time, can be net long positions or net short positions;
Market neutrality, that is, buying stocks with low stock prices and selling stocks with high stock prices;
Conversion arbitrage, that is, buying convertible bonds at a low price and shorting stocks at the same time, and vice versa;
Global macro, that is, top-down analysis of local economic and financial systems, trading according to political and economic events and general trends;
Manage futures, that is, hold long and short positions in various derivatives.
The two most classic investment strategies of hedge funds are "short selling" and "leverage".
Short selling, also known as short selling, refers to buying stocks as short-term investment, that is, selling short-term stocks first, and then buying them back when the stock price falls to earn an arbitrage. Short sellers almost always borrow other people's stocks to short ("long" means buying and holding stocks themselves). It is most effective to take a short strategy in a bear market. If the stock market rises instead of falling, and short sellers bet in the wrong direction of the stock market, they must spend a lot of money to buy back the appreciated stocks and eat into losses. Shorting this investment strategy is not adopted by ordinary investors because of its high risk.
"Leverage" has multiple meanings in financial circles. Its English word basically means "lever". Usually refers to expanding one's capital base through credit. Credit is the lifeblood and fuel of finance, and entering Wall Street (financing market) through "leverage" has a symbiotic relationship with hedge funds. In high-risk financial activities, "leverage" has become an opportunity for Wall Street to provide chips for big players. Hedge funds borrow money from big banks, while Wall Street provides services such as buying and selling bonds and backstage. In other words, hedge funds with bank loans will in turn invest a lot of money back to Wall Street in the form of commissions.
[Editor] Famous hedge funds
The most famous hedge funds are george soros's Quantum Fund and Julius Robertson's Tiger Fund, both of which have created compound annual returns of 40% to 50%. High-risk investment may bring high returns to hedge funds, and it may also bring unpredictable losses to hedge funds. The biggest hedge fund can't be invincible in the unpredictable financial market forever.
[Editor] Quantum Fund
George Soros
Major projects: Quantum Fund
The predecessor of 1969 Quantum Fund, Shuangying Fund, was founded by george soros with a registered capital of USD 4 million. 1973, the fund was renamed Soros fund, and its capital jumped to120,000 USD. There are five hedge funds with different styles under Soros Fund, and Quantum Fund is the largest one and one of the largest hedge funds in the world. 1979 Soros renamed his company again and officially named it Quantum Company. The so-called quantum comes from Heisenberg's uncertainty principle of quantum mechanics, which is consistent with Soros's view of financial market. The law of uncertainty holds that it is impossible to accurately describe the motion of atomic particles in quantum mechanics. Soros believes that the market is always in an uncertain and constantly fluctuating state, but it is possible to make money by gambling with obvious discounts and unpredictable factors. The smooth operation of the company and the super-par price are based on the relationship between supply and demand of stocks.
The headquarters of Quantum Fund is located in new york, but its investors are all non-American foreign investors, in order to avoid the supervision of the US Securities and Exchange Commission. Quantum funds invest in commodities, foreign exchange, stocks and bonds, and make extensive use of financial derivatives and leveraged financing to engage in all-round international financial operations. With Soros's excellent analytical ability and courage, quantum funds have gradually grown in the world financial market. Because Soros has accurately predicted the extraordinary growth potential of a certain industry and company many times, he has gained excess returns in the rising process of these stocks. Even in the bear market where the market fell, Soros made a lot of money with his superb short-selling skills. By the end of 1997, the quantum fund had increased its total asset value to nearly $6 billion. The $65,438+0 injected into the Quantum Fund in 65,438+0969 has increased to $30,000 by the end of 65,438+0996, which is an increase of 30,000 times.
[Editor] Tiger Fund
1980, Julian Robertson, a famous broker, raised $8 million to set up his own company, Tiger Management Corp During 1993, Tiger Fund, a hedge fund under Tiger Fund Management Company, successfully attacked the pound and lira, and gained huge profits in this operation. Since then, Tiger Fund has become famous and sought after by many investors, and its capital has also expanded rapidly, eventually becoming the most prominent hedge fund in the United States.
Since the mid-1990s, the performance of Tiger Fund Management Company has been rising, and great achievements have been made in stock and foreign exchange investment. The company's highest profit (excluding management fees) reached 32%. 1in the summer of 998, its total assets reached the peak of $23 billion, and it once became the largest hedge fund in the United States.
1998 In the second half of the year, Tiger Fund made a series of investment mistakes and went downhill from then on. During the period of 1998, after the Russian financial crisis, the exchange rate of the Japanese yen against the US dollar once fell to 147: 1. In anticipation that the exchange rate would fall below 150, Julian Robertson ordered its Tiger Fund and Jaguar Fund to short the yen in large quantities, but the yen soared to 65,438 in two months, but the Japanese economy did not improve at all. Among the biggest losses in a single day (1998 10.07), Tiger Fund lost $2 billion, and in September of 1998 and June of 10, Tiger Fund lost nearly $5 billion in yen speculation.
During the period of 1999, Robertson invested heavily in the shares of American Airlines Group and Waste Management Company, but the share prices of these two commercial giants continued to fall, and the Tiger Fund was hit hard again.
From 1998 to 12, nearly $2 billion of short-term funds were withdrawn from Jaguar Fund, and from 1999 to 10, a total of $5 billion was withdrawn from Tiger Fund Management Company. The withdrawal of investors has prevented fund managers from focusing on long-term investments, thus affecting the confidence of long-term investors. Therefore, on October 6th, 1999/kloc-0, Robertson requested that the redemption period of his three funds, Tiger, Cougar and Jaguar, be changed from March 3rd, 2000 to semi-annual, but on March 3rd, 2000, Robertson was in Tiger Fund. After the closure of Tiger Fund, $6.5 billion of assets were liquidated, 80% of which were returned to investors, and Julian Robertson personally left $654.38+$50 million for further investment.
[Edit] Other
fuchsia
TCI
[Editor] Hedge Fund Investment Case
In many known hedge fund investment cases, when the prices of financial markets are disturbed by hedge funds, these prices will continue to fall in the direction expected by hedge funds. At the same time, the more serious the damage to the attacked country, the better for the attacked hedge fund. The result is a redistribution of wealth between hedge funds and nation-states. From the perspective of fair distribution, this behavior of hedge funds is considered to be close to monopoly, so its income is close to monopoly profit. Economists believe that the market is an effective resource allocation mechanism. However, once hedge funds manipulate prices, the chances of winning or losing are not equal, which will lead to the destruction of the market itself, including the monetary system, not to mention improving the efficiency of the market. Judging from the values of economics, since there is no efficiency, there is no moral foundation. Because of the redistribution of wealth caused by this behavior, the winner's income is not only at the expense of the loser's equal loss, but also at the expense of the loser's greater loss, even the collapse and failure of its monetary system and economic mechanism; From a global perspective, it is a net welfare loss. [Source Request]
[Edit] 1992 Sniper pound
Since 1979, the European Economic Community, which has not yet unified the currency, has unified the currency exchange rates of various countries and formed the European currency exchange rate linked insurance system. The system stipulates that national currencies are allowed to float within 2.5% of the "central exchange rate" of the European Community. If the exchange rate of a member country exceeds this range, the central banks of other countries will take action to intervene. However, the economic development of EC member countries is unbalanced, and fiscal policies can not be unified at all. The currencies of different countries are affected by their respective interest rates and inflation rates. Therefore, sometimes, the linked insurance system forces the central bank to take actions against its will. For example, when foreign exchange transactions fluctuate violently, these central banks have to buy weak currencies and sell strong currencies to maintain the stability of the foreign exchange market.
1989, after the reunification of East and West Germany, Germany's economy grew strongly, while the German mark was firm. 1992, Britain was in a period of economic depression and the pound was relatively weak. In order to support the pound, the interest rate of British banks has been high, but this will inevitably hurt Britain's interests, so Britain hopes that Germany will lower the interest rate of the mark to ease the pressure on the pound. However, due to the overheating of the German economy, Germany hopes to use the high interest rate policy to cool the economy. Due to Germany's refusal to cooperate, the pound continued to fall in the money market. Although Britain and Germany joined hands to sell marks for pounds, it still didn't help. 1In September, 1992, the governor of the German central bank published an article in the Wall Street Journal, in which he mentioned that the instability of the European monetary system can only be solved by currency devaluation. Soros had a premonition that the Germans were going to retreat, and Mark no longer supported the pound, so his quantum fund borrowed a large sum of pound, and 5% of the deposit bought Mark. His strategy is: before the exchange rate of the pound falls, buy the mark with the pound, and when the exchange rate of the pound plummets, sell part of the mark to pay back the original borrowed pound, and the rest is the net profit. In this operation, Soros's quantum fund shorted the pound equivalent to $7 billion and bought the mark equivalent to $6 billion, and made a net profit of $65.438+$50 billion in more than a month, while European central banks lost a total of $6 billion. The event ended with the pound exchange rate falling by 20% within 654.38+0 months.
[Editor] Asian financial turmoil
Main topic: Asian financial crisis
1In July 1997, Quantum Fund sold a lot of Thai baht, forcing Thailand to abandon its long-term fixed exchange rate pegged to the US dollar and float freely, thus triggering an unprecedented crisis in Thailand's financial market. After that, the crisis quickly spread to all countries and regions with freely convertible currencies in Southeast Asia, and Hong Kong dollar became the most expensive currency in Asia. Later, Quantum Fund and Tiger Fund tried to attack the Hong Kong dollar. Although the Hong Kong Monetary Authority has a large amount of foreign exchange reserves, the authorities have raised interest rates substantially, but they cannot force the funds to leave. However, high interest rates caused Hong Kong's Hang Seng Index to plummet by 40%. They realized that short selling Hong Kong dollars and stock futures at the same time, the former led to soaring interest rates, dragging down the entire Hong Kong stock market, and they "definitely" would make a profit. Although the Hong Kong government's intervention in the market in August of 1998 only reduced its profit in the stock market, the sharp drop in the forward Hong Kong dollar increased its profit (HKMA denied that the foundation chose to sell Hong Kong dollar futures, so it did not benefit the fund, but Lei Dingming, a scholar at the Hong Kong University of Science and Technology, pointed out that this must be based on the assumption that speculators were stupid). According to Lei Dingming, a scholar at the Hong Kong University of Science and Technology, during the financial turmoil, he offered assistance, including a method of attaching a Hong Kong put option to a risk-free bill, which was approved by Nobel Prize winner Miller, and a method called "Qian Qian's Movement", but insisted on not adopting the "source request" (the reasons for refusal during the financial turmoil were refuted by Professor Lei and his colleagues and published in Ming Pao).
During the financial turmoil, HKMA also raised the capital adequacy requirements of banks, which further dealt a blow to the local economy.