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Hedge Funds

Introduction to Hedge Funds

A plain-English introduction to hedge funds: what they are, the main strategies, how short selling, leverage and fees work, and how investors judge liquidity, performance and risk.
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Level
Beginner
Lessons
13 lessons
Length
3.8 hours
Modules
4 modules

Module 1 · What hedge funds are

50 min

  1. 1.1

    1.1 Defining hedge funds Free preview

    What a hedge fund is: a privately offered pooled fund with a flexible mandate, open to eligible investors and paid partly on performance.

    15 min
  2. 1.2

    1.2 Hedge funds vs. mutual funds and private equity

    How hedge funds compare with mutual funds and private equity funds on investors, liquidity, flexibility, fees, transparency and regulation.

    20 min
  3. 1.3

    1.3 How the industry grew

    How hedge funds grew from one hedged fund in the late 1940s into an institutional industry shaped by crises, regulation and large platforms.

    15 min

Module 2 · Strategies

70 min

  1. 2.1

    2.1 Equity long/short

    How equity long/short funds buy some stocks and short others, how to calculate gross and net exposure, and where alpha and beta come from.

    20 min
  2. 2.2

    2.2 Macro and managed futures

    How global macro funds trade their economic views and how managed futures funds follow trends, and why both can behave differently from stocks in a crisis.

    15 min
  3. 2.3

    2.3 Relative value and event-driven

    How relative value funds trade price gaps between related securities, and how event-driven funds trade mergers and special situations.

    20 min
  4. 2.4

    2.4 Credit and multi-strategy

    How credit hedge funds trade corporate debt, including distressed debt, and how multi-strategy funds and multi-manager platforms are organized.

    15 min

Module 3 · How a hedge fund works

55 min

  1. 3.1

    3.1 Fund structures and service providers

    How a hedge fund is built: the manager and the fund, onshore and offshore vehicles, master-feeder structures, share classes and key service providers.

    20 min
  2. 3.2

    3.2 Short selling, leverage and prime brokerage

    How hedge funds short stocks and use leverage, what a prime broker provides, and why borrowed money and borrowed shares magnify risk.

    15 min
  3. 3.3

    3.3 Fees, high-water marks and hurdles

    How hedge fund managers are paid: management and performance fees, the high-water mark, hurdles, crystallization and equalization.

    20 min

Module 4 · Investing in hedge funds

50 min

  1. 4.1

    4.1 Liquidity terms

    How investors get in and out of a hedge fund: dealing dates, notice periods, lock-ups, gates, side pockets and suspensions, with a worked gate example.

    15 min
  2. 4.2

    4.2 Measuring performance and risk

    Returns, volatility, the Sharpe ratio, maximum drawdown, beta and alpha, with worked examples, and why a hedge fund's figures can flatter its risk.

    20 min
  3. 4.3

    4.3 Due diligence and the investor's view

    How allocators assess a hedge fund's strategy and operations, what reporting to expect, and how managed accounts and funds of funds fit into a portfolio.

    15 min

Final assessment