Course Outline: MFIN 834

Introduction to Hedge Funds

2014
Course Meets: Section 1: Alternate Saturdays, March 15, 29, April 12, 26
Time: 9:00am-5:00pm

Instructor: Jon Aikman

E-Mail: jaikman@queensu.ca
Homepage: www.jsaikman.com
Phone (Fax): 416.712-9391
Office Hours: Sat 5:00-6:00 or as arranged.

Course Goals
1. To develop skills for understanding what hedge funds are and their characteristics and
related due diligence, and inter-relationship to service providers such as prime brokers,
executing brokers, administrators and others.
2. To develop skills in identifying investment strategies and practical applications of those
strategies.
3. To evaluate the challenges and problems of strategic management, risk management and
due diligence in hedge funds and broker dealers.
4. To identify the risks to investors, hedge funds, broker dealers and the financial industry
associated with the failure of a hedge fund or broker dealer.
5. To develop investment strategies and due diligence practices to understand and mitigate
the risks in hedge funds and broker dealers, and the larger investment banks.

Course Scope and Mission

Introduction to hedge funds, executing brokers and prime brokers, what they are, what they do and
what risks are associated with them. This course is about the interrelationship between hedge funds,
investment banks and their investors, with specific attention to prime brokers and executing brokers,
and other service providers.

Also, the history of hedge funds will be explored, including the risks of failure of hedge funds, such as
LTCM, and investment banks and brokers, such as Lehman Brothers, Refco, MF Global, and the
distress or certain investment banks, such as Bear Stearns. Also, practical applications of launching
and running a simulated hedge fund will demonstrate the challenges, risks and potential rewards of
alternative investments to investors, hedge funds and their service providers.

Required Readings
1. Investment Strategies of Hedge Funds, Stefanini, Wiley, 2006.
2. When Prime Brokers Fail, J. Aikman, Bloomberg/John Wiley, 2010.

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Required Cases
1. The Dynamis Fund: An Energy Hedge Fund, Darden, OV0621
2. A Tale of Two Hedge Funds: Magnetar and Peloton, Kellogg, KEL 402
3. Nomura's Global Growth: Picking up the Pieces of Lehman, Harvard, 9-210-017
4. The Tip of the Iceberg: JP Morgan Chase and Bear Stearns (A),Harvard, 9-309-001
5. Hayman Capital Management
http://hbr.org/product/hayman-capital-management/an/212091-PDF-ENG
6. Palepu, Krishna G., Suraj Srinivasan, and James Weber. "Target Corporation: Ackman versus the Board." Harvard
Business School Case 109-010, June 2009. (Revised January 2011.)
7. AQR's Momentum Funds (A) by Daniel B. Bergstresser, Lauren H. Cohen, Randolph B. Cohen, Christopher Malloy
Source: HBS Premier Case Collection 12 pages. Publication Date: Sep 23, 2010. Prod. #: 211025-PDF-ENG

Evaluation and Grades

Grades are a measure of the performance of a student in individual courses. Each student shall be
judged on the basis of how well he or she has command of the course materials.

Participation 20% Each class

Quizes (2x20%) 40%
Group Presentation 20%
Individual Written Presentation 20%

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Weekly Schedule
Session Topic Readings/Preparation Further reading

1 Introduction: Hedge Funds and Brokers INTRODUCTION: The Age of Turbulence,

Dealers and Extraordinary markets Course review Alan Greenspan
March 15 Hedgehogging, Barton
Morning CASE: The Dynamis Fund Biggs
Guide to Hedge Funds,
Stefanini , Chapters 1-2 Phillip Coggan
Liars Poker, Michael Lewis

2 What are Hedge Funds and Broker Handbook of Alternative

Dealers? What they are, what they trade, CASE: Investments, Mark J. P.
March 15 what they are doing… and how they are A Tale of Two Hedge Funds Anson, 2nd Edition, Wiley
Afternoon regulated: Readings: Hedge Funds: Finance
Chapters 5-7 The Bible of Options
Strategies: The Definitive
Stefanini, Ch. 3, 8 & 9 Guide for Practical
Trading Strategies

3 Strategies: Theory and application CASE: Investment Strategies of

Hayman Capital hedge funds, Filippo
March 29 Management Stefanini, John Wiley &
Morning Sons, Ltd., 2007
Lecture on Strategies Options Futures and
Stefanini, Chapters, 4-7, 14 Other Derivatives, John
Hull, 6th

4 Strategies: Failure of a hedge fund: LTCM - Madoff LTCM Readings: Fooling Some
Long Term Capital Management, and of the People All of the
March 30 quasi-hedge fund structures CASE: Time: A Long Short Story,
Afternoon The tip of the Iceberg: JPM David Einhorn, John
Marketing a hedge fund Chase and Bear Stearns Wiley & Sons, Inc. 2008
Readings:
When Prime Brokers Fail, 1-
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QUIZ

5 Alternative Asset Management: CASE: When Prime Brokers Fail

Nomura’s Global Growth:
April 12 Service Providers to hedge funds: Prime Picking up the Pieces of
Morning Brokers, Administrators, Auditors, Lehman
Accountants and others
Readings: When Prime
Brokers Fail, 5-10

6 Business Management: Risks CASE: Hedge Funds and Prime

Ackman: Target Case Brokers, Edit. Berman
April 12 Activist managers
Afternoon Quiz

7 Strategies and Risks CASE: AQR Momentum

Funds
April 26
Morning Guest Speaker

8 GROUP PRESENTATIONS
Group Presentations
April 26 Presentations (qualitative
Afternoon and quantitative) by
teams for hedge funds to
investors or
senior management of
broker

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