What is Market Directional Hedge Funds? Corporate Restructuring Hedge Funds?

Convergence Trading Hedge Funds? Opportunistic Hedge Funds? Give examples.

A market directional hedge fund is one in which the asset manager retains some exposure to
"systematic risk”.

Ex: Equity long/short selling strategies, equity market timing and short selling.

A corporate restructuring hedge fund is one in which the asset manager positions the portfolio to
capitalize on the anticipated impact of a significant corporate event.

Ex: These events include a merger, acquisition, or bankruptcy. Hedge funds that fall into this category
are divided into three groups.

The first group includes hedge funds that invest in the securities of a corporation that is either in
bankruptcy or is highly likely in the opinion of the asset manager to be forced into bankruptcy. The
securities of such corporate entities are called distressed securities.

The second group includes hedge f1u1ds that focus on what is called merger arbitrage. The underlying
rationale for merger arbitrage is that in a merger the stock price of the target company usually trades
below the price being offered by the acquiring company.

The third group of corporate restructuring hedge foods includes hedge funds that seek to capitalize on
other types of broader sets of events impacting a corporation.

Convergence Trading Hedge Funds - Certain relationships between prices yields have been observe in
the sectors of the financial market.

Ex: An infamous example of arbitrage funds was John Meriwether's Long-Term Capital Management.
The giant fund with Nobel Prize laureates Myron Scholes and Robert C. Merton in the team was first
adored by the whole Wall Street and then in 1998 almost caused the whole Wall Street to collapse. It
was bailed out by major banks under supervision of the Fed. LTCM was mostly trading fixed income
spreads.

Opportunistic Hedge Funds have the broadest mandate of all of the four hedge fund categories. Asset
managers of hedge funds can make specific bet on stocks or currencies or they could have well-
diversified portfolios. There are two groups of hedge funds that fall into this category: global macro
hedge funds and funds of funds.

Ex:

Global macro hedge funds and Funds of funds.