RG Hedge Funds Strategies and Their Market

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HEDGE FUNDS' STRATEGIES AND THEIR MARKET
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UNIVERSITÁ DEGLI STUDI DI MILANO-BICOCCA
Scuola di Economia e Statistica
Corso di laurea in
ECONOMIA DELLE BANCHE, DELLE ASSICURAZIONI E DEGLI

INTERMEDIARI FINANZIARI
HEDGE FUNDS’ STRATEGIES AND THEIR MARKET
Relatore: Prof. Paola Agnese Bongini
Tesi di Laurea di:

Angela Zhou
Anno Accademico 2018/2019

献给家人和一路上支持我的朋友.
To my Family and the Friends who supported me in this journey.
2
Index
ABSTRACT 4
CHAPTER 1: GENESIS AND STRUCTURE OF HEDGE FUNDS 5
GENESIS AND KEY ELEMENTS OF HEDGE FUNDS 6

History 6
Key Elements of a Hedge fund 7
LEGAL STRUCTURE AND PARTIES INVOLVED 8

Key Players 8
Qualified Investors and Amount of AUM allocated to Hedge funds 9
Master-Feeder Structure 10
Onshore Structure 11
CHAPTER 2: HEDGE FUND INVESTMENT STRATEGIES 12
EQUITY FUNDS 13
Equity long-short 13
Market Neutral 13
Short-selling 14
Arbitrage Funds 14
Convertible Arbitrage 15
Statistical Arbitrage 15
Fixed income arbitrage 16
DIRECTIONAL FUNDS 17
Global Macro Managers 17
Managed Futures or Commodity Trading Advisors 17
EVENT DRIVEN 18
Distressed Debt 18
Merger Arbitrage 18
Activist Funds 19
MULTI-STRATEGY FUNDS 20
CHAPTER 3: HEDGE FUNDS’ AND THEIR MARKET 21
HEDGE FUND INDUSTRY AND ITS HISTORICAL GROWTH 22

REGIONAL BREAKDOWN OF HEDGE FUNDS 24
HEDGE FUNDS AND GROWTH RATE BY REGION 26
INVESTMENT STRATEGIES AND MARKET DIMENSION 27
INVESTMENT STRATEGIES AND RETURNS 28
HEDGE FUNDS’ PERFORMANCES IN 2018 31
3
ABSTRACT
In this paper we analyze Hedge Funds’Strategies and their Market.
Firstly, we will introduce its Genesis and its Key Elements followed by its Legal Structure. Secondly,
we will explain the main Hedge fund Investment Strategies alongside the logic behind their schemes.
Next, in the last chapter of this paper, we will illustrate data collected from various databases with
the objective to Define Hedge funds’ and their Market Dimension under several indicators such as
the Assets Under Management, the Geographic Location, the Strategies and the Returns.
Finally, the last section of this paper will include a Bloomberg report on the latest performances of
Hedge funds with the purpose to inform and allow the reader to make further observations concerning
the current Hedge fund Market.
4
CHAPTER 1: GENESIS AND STRUCTURE OF HEDGE FUNDS
5
GENESIS AND KEY ELEMENTS OF HEDGE FUNDS
History
The genesis of Hedge funds is linked to Alfred Winslow Jones, a former writer and sociologist, who
in 1949 after raising $100,000 launched the first Hedge fund in a general investment partnership that
will be later converted to a limited partnership in 1952.1
Before Jones, there were already many other early pioneers who invested with an absolute return
methodology in the investment business, however, it is Jones who effectively introduced an investing
innovation in the financial industry with his model of investing, setting as a result the basic format
for hedge funds.
His model was based upon the objective of minimizing the risk in holding long-term stock positions
by short-selling other stocks in conjunction with the use of leverage to enhance potential returns, in
addition to that, he also changed the fee structure by adding a 20% incentive fee as a compensation
for the managing partner, allowing mangers to earn 10 to 20 times as much compared to long-only
managers.2
However, it is only in 1966, with the release of the Fortune Magazine’s article declaring Jones’
success in outperforming the best mutual fund by 44% and top mutual funds by more than 85% net
of all fees3 that a rise of interest by high net worth individuals and talented professional inventors in
hedge funds took place.
In conclusion, even if the term “Hedge fund” dates back only to 1949, the Hedge Fund Industry it is
one of the fastest growing sectors of the financial services industry. Detailed data on its growth can
be consulted in Chapter 3 section 1 of this study.
1
MARIO J. GABELLI, “THE HISTORY OF HEDGE FUNDS - THE MILLIONAIRE'S CLUB”
HTTPS://IAMGROUP.CA/DOC_BIN/THE%20HISTORY%20OF%20HEDGE%20FUNDS%20-%20THE%20
MILLIONAIRES%20CLUB.PDF
2
JAMES CHEN, HEDGE FUND, 25/6/2019,
HTTPS://WWW.INVESTOPEDIA.COM/TERMS/H/HEDGEFUND.ASP
3
6
Key Elements of a Hedge fund
Hedge funds are well-known and popular in the Financial Industry for their great flexibility and wide
range of investment options. In this context, Hedge fund managers operate with an absolute return
methodology with the objective of maximizing returns, eliminating risks and often enhancing
profitable returns by the use of leverage.
Since Hedge fund managers are free to take both long and short positions in their investments, this
allows them to seize more opportunities than traditional mutual fund managers offering profitable
investment opportunities even when stock markets are plunging.4
Generally, in terms of taxation, up until now they have been lightly taxed and are often registered in
some offshore center such as the Cayman Islands or Bermuda5.
Due to the fact that they mostly operate with private investment limited partnership structure where
Limited partners contribute with the money and the general partner manages it according to the fund’s
strategy, they are not quoted on any stock exchange and are only open to a limited number of
accredited investors and are usually requiring a large initial minimum investment.6
Additionally, given that Hedge funds are not liquid investments and Hedge fund managers often
impose its investors to notify any intention of withdrawal in advance, the investors may be able to
sell their holdings only at certain intervals such as quarterly or biannually and are often required to
keep their money in the fund for a certain period of lock-up period of one year or even longer if the
Hedge fund has just started.7
Lastly, Hedge funds have a different fee structure from traditional mutual funds. More specifically,
structure is known by the financial industry as “Two and Twenty” and it is a reward-based structure
consisting of a 2% management fee and an additional 20% incentive fee on the profits to compensate
the managing partner for the skills involved in rising the value of the fund.
4
PHILIP COGGAN, 2011, “GUIDE TO HEDGE FUNDS WHAT THEY ARE, WHAT THEY DO, THEIR RISKS,
THEIR ADVANTAGES”, THE ECONOMIST NEWSPAPER LTD. P 3-4
5
THEIR ADVANTAGES”, THE ECONOMIST NEWSPAPER LTD. P 3-4
6
SHAM GAD, WHAT ARE HEDGE FUNDS?, 22/11/2013,
HTTPS://WWW.FORBES.COM/SITES/INVESTOPEDIA/2013/10/22/WHAT-ARE-HEDGE-
FUNDS/#D21F6B048EE3
7
7
LEGAL STRUCTURE AND PARTIES INVOLVED
Hedge funds are generally set up as private investment limited partnerships with a two-tiered
organization, where limited partners contribute with the money and the general partner manages it
according to the fund’s strategy. More specifically, in limited partnerships investors share both gains
and losses, for this very reason each partner is taxed according to their respective share of the
partnership. 8
STATE RETIREMENT PLAN,

UNIVERSITY,
HIGH NET WORTH INDIVIDUAL HEDGE FUND GENERAL PARTNER
SOURCE: HEDGE FUND FUNDAMENTALS
Key Players
The Key players in a Hedge fund are the Investment Manager, the Prime Broker and the Auditors.
As previously mentioned, the Investment Manager determines the fund’s strategy with the objective
to achieve absolute return.
Because the fund must secure their loans with collateral in order to execute trades, close business
ties between Hedge funds and Prime Brokers must be set and this incudes Investment Banks,
Wealth Management firms and Securities Dealers.9
Lastly, even if Hedge funds are not required for auditing due to the private partnership structure,
many hedge funds choose to have their funds evaluated by external auditors in order to attract
investors providing them tools to exanimate the fund’s operations and management and showing the
quality and transparency of the fund.10
8
HEDGE FUND FUNDAMENTALS, 2016, “HOW HEDGE FUNDS ARE STRUCTURED”,
HEDGEFUNDAMENTALS.ORG
9
HTTPS://EN.WIKIPEDIA.ORG/WIKI/PRIME_BROKERAGE
10
FUND AUDITOR, HTTP://WWW.QUANTSPORTAL.COM/FUND-AUDITORS/
8
Qualified Investors and Amount of AUM allocated to Hedge funds
More specifically, the Qualified Investors of a Hedge funds are:
-STATE RETIREMENT PLANS: including Public employee retirement plans and Corporate
employee retirement plans.
-UNIVERSITY ENDOWMENTS
-FOUNDATIONS AND NON-PROFIT ORGANIZATIONS
-FAMILY OFFICES
-HIGH NET-WORTH INDIVIDUALS: individuals with an annual income exceeding $200,000 for
the past wo years or a net worth exceeding $1 million.11
The graph below illustrates the amount of Assets Under Management allocated to Hedge funds by
allocator type:
SOURCE: GPP GROUP12
11
12
GPP GROUP, 2018, “MAKING IT BIG HEDGE FUND MANAGER SURVEY 2018 CHARTING THE
EVOLUTION OF THE BILLION-DOLLAR HEDGE FUND”, GPP GROUP
9
Master-Feeder Structure
Since a fund is set up in order to meet the needs of its investors, the creation of an efficient hedge
fund structure requires the participation of lawyers from both offshore and onshore lawyers.
Even if many are the possible structures, in most cases, the Hedge fund is set up in a Master-Feeder
structure where the Master fund is typically incorporated in a tax neutral offshore jurisdiction into
which distinct feeder funds invest13.
SOURCE: MAURY CARTINE, JD, CPA 14
13
FRANK J. TRAVERS, 2012, “HEDGE FUND ANALYSIS AN IN-DEPT GUIDE TO EVALUATING RETURN
POTENTIAL AND ASSESSING RISKS”, JOHN WILEY & SONS, INC. P31
14
DANIEL A. STRACHMAN, 2012, “THE FUNDAMENTALS OF HEDGE FUND MANAGEMENT” P189
10
Onshore Structure
Another typical Hedge fund set-up is the Classic Stand-alone fund Structure. Under this structure
it is relevant to point out that the Limited Partnership is replaced with a Limited Liability Company
and the General Partner is more exposed to suffer more consequences in adverse income tax if
compared to other structures.
SOURCE: MAURY CARTINE, JD, CPA 15
15
DANIEL A. STRACHMAN, 2012, “THE FUNDAMENTALS OF HEDGE FUND MANAGEMENT” P189
11
CHAPTER 2: HEDGE FUND INVESTMENT STRATEGIES
12
EQUITY FUNDS
Equity long-short
As the name suggests, Equity funds employ equity securities and equity-like securities such as swaps
and options.16 Given that the Equity Long-Short strategy focuses on the manager’s ability in stock
selection, the manager employs a wide variety of techniques, including quantitative and fundamental
analysis to arrive at an investment decision with the objective of outperforming the traditional equity
benchmark. Strategies can be broadly diversified or narrowly focused in small, mid, or large cap and
managers can shift among market caps based on prevailing opportunities. However, Due to its high
similarity to traditional funds, a hedge fund with a significant exposure to the market will easily start
to look like a traditional long-only with higher fees.17
Market Neutral
Equity Market Neutral funds aim to create positive returns regardless of the overall market trend and
it is achieved by hedging against market factors and by creating a zero net-exposure. Market Neutral
Strategy is considered the purest form of hedge fund investing because the fund relies on the
manager’s skill in minimizing the exposure to the market by his ability to pick stocks. In broad terms,
this strategy is based upon the concepts of pair trading, dollar neutral investing and factor neutrality.
In order for the operation to be factor neutral, the manager may pick stocks within the same sector,
industry, region, or share common traits including market capitalization and historical correlation.
Fundamentals of Pair trading and dollar neutral investing are applied by taking equal amounts in both
long and short positions, hence allowing the manager to achieve a 0% net exposure and a 100% gross
exposure.18
16
17
PHILIP COGGAN, 2011, “GUIDE TO HEDGE FUNDS WHAT THEY ARE, WHAT THEY DO, THEIR
RISKS, THEIR ADVANTAGES”, THE ECONOMIST NEWSPAPER LTD. P. 20
18
JAMES CHEN, MARKET NEUTRAL, 17/5/2018,
HTTPS://WWW.INVESTOPEDIA.COM/TERMS/M/MARKETNEUTRAL.ASP
13
Short-selling
Short selling is a strategy that bet and profit from a decline in security’s price. In general terms, the
investor opens the position by borrowing a security and sells it to the open market with the plan to
buy it later at a lower price, profiting therefore from its difference. Given the high risk/reward ratio,
short selling can offer big profits or unlimited losses, for this very reason short sellers are of a limited
amount in the world and should be done only by traders with expertise and knowledge on the risks
involved. Consequently, before taking positions, Short biased funds should take account into the
following risks and disadvantages: Since Short biased funds act as contrarians to the market by
shorting when competitors play long, it is also true that its competitors can push market against them.
Additionally, they place themselves intentionally in a disadvantaged position because in the long-
term markets tend to generally rise. Furthermore, in terms of profits and losses, while the maximum
gain that can be achieved is 100%, the loss can mount quickly, and it is potentially infinite. Finally,
funds employing short selling strategies are often perceived as “ruthless operators out to destroy
companies19” and this results in often having to face aggressive press campaigns against them.
Arbitrage Funds
An Arbitrage fund is a type of fund that exploits the differential between the cash and derivative
market to generate returns. To understand this concept, it is important to familiarize with the
definitions of cash market and derivative market. Essentially, in the Cash Market the price of a share
is the price in the stock market, while in the derivatives market, prices reflect an anticipated value of
the stock at a set time in the future. Typically, given a bullish market where transaction costs are
smaller than gap in prices, An Arbitrage fund operates with the following logic:
the fund buys the stocks of a company in the cash market for 10$ and simultaneously sells a single
contract for the same number of shares in the futures market that matures in one month for 11$.
As stated in the example above, Arbitrage funds profit within pricing discrepancies and operate with
the main objective to detect anomalies in the mispricing of two or more securities simultaneously.
However, due to the high frequency of market scanning, arbitrage opportunities are rare and will most
likely be absent. For this very reason, Arbitrage funds result to generally perform best after a period
of great volatility because returns depend on the level of volatility of the asset. Overall, the idea
behind Arbitrage fund is to benefit from a volatile market with relatively low risk and unpredictable
payoff.
19
14
Convertible Arbitrage
Convertible arbitrage is an equity long-short investing strategy that typically involves the
simultaneous purchase of convertible securities and the sale of the underlying common stock.
Assuming that in relation to the company’s stocks, a firm’s convertible bonds are priced inefficiently,
the main objective of this strategy is to detect pricing inefficiencies between a convertible security
and the stock to capitalize on it. In order to able to comprehend this strategy, it is relevant to be
familiar with the definition of convertible security. Convertible security is a security that can be
converted into another security at a set (ex-ante) price and time, in real world this notion is mostly
applied to convertible bonds, i.e. fixed income instruments that give investors the right to switch into
shares at a pre-determined price. Hedge funds employing Convertible arbitrage will operate in line
with the following logic:
Given that the manager takes a long position in a company’s convertible bond and a short position
in a company’s stocks simultaneously.
If the price of the company falls, the manager benefits from its short position.
On the contrary, If the price of the company rises, the manager can benefit from its long position by
converting its convertible bonds into stocks.
In addition to that, convertible bonds carry a lower interest rates compared to traditional bonds.
Statistical Arbitrage
Statistical arbitrage is a market neutral strategy, it involves the simultaneous opening of a long and
short position and it relies heavily on the theory of mean reversion. According to this theory, given a
data set, prices eventually return to its mean or average level in the long run. However, due to the fact
that two stocks can remain uncorrelated for a significant amount of time, funds operating with this
strategy have a computationally intensive approach in identifying tiny pricing inefficiencies between
correlated securities that last a fraction of a second. Additionally, Stat arb is Also known as an evolved
version of pair trading.
15
Pair Trading:
SOURCE: QUANTISTI20
Fixed income arbitrage
Fixed income arbitrage is a market-neutral strategy, meaning fund managers attempt to profit from
pricing anomalies between fixed income securities regardless of the overall bullish or bearish state of
the market. In practical terms, this strategy involves the simultaneous assumption of opposing
positions in the market to take advantage of small price discrepancies while limiting interest rate risk.
In order to properly understand fixed income arbitrage, one should be first familiar with the concept
of fixed income securities. Fixed income securities fall in the category of debt instruments with a
fixed stream of income, they are issued by private companies or the government, some examples are
corporate bonds and government bonds. A typical operation adopting this kind of strategy would be
“the purchase of government bonds at the short end of the curve and the simultaneous sale of
government bonds at the long end of the yield curve.”21
20
ANUPRIYA GUPTA & MILING PARADKAR, ARBITRAGE STRATEGIES: UNDERSTANDING WORKING
OF STATISTICAL ARBITRAGE, 28/11/2017, HTTPS://WWW.QUANTINSTI.COM/BLOG/STATISTICAL-
ARBITRAGE
21
POTENTIAL AND ASSESSING RISKS”, JOHN WILEY & SONS, INC.
16
DIRECTIONAL FUNDS
Global Macro Managers
A Global macro strategy is an investment and trading strategy that attempts to exploit broad market
swings in the global market, and it is based upon the interpretation of macroeconomic and geopolitical
events, therefore focusing on the systematic risk of markets. In most cases, the manager does a top-
down economic market analysis, often employing leverage on the long or short position taken with
the finality to enhance detected opportunities. Additionally, since that Global macro funds are the
least restricted ones, its managers can employ a wide variety of assets and instruments worldwide,
including: Options, futures, currencies, index funds, bonds and commodities. In general terms, Global
macro strategies can be classified into: Currency strategies, Interest rate strategies, Stock index
strategies.22
Managed Futures or Commodity Trading Advisors
Managed futures refers to an industry made up of professional money managers known as commodity
trading advisors (CTAs) 23 overseen by the Commodity Futures Trading Commission. In favor of
managed futures, Various academic studies have proved that combining traditional asset classes with
alternative investments lower and diversify portfolio risk. Typically, A diversified Managed futures
account has exposure to several markets such as commodities, energy, agriculture and currency24 and
employ technical, fundamental and quantitative analysis to evaluate securities to construct a portfolio
that provides an optimized risk/return profile. In most cases, the firms are highly dependent on black
box financial models, i.e. involving the employment of computer programs to transform data into
profitable opportunities. However, since the model can be copied by another manager, black box
models’ internal workings and logic are hidden, as a result, as David Swensen has stated:” it is hard
to be a partner with somebody who has a black box “.25
22
HTTPS://CORPORATEFINANCEINSTITUTE.COM/RESOURCES/KNOWLEDGE/TRADING-
INVESTING/GLOBAL-MACRO-STRATEGY/
23
JOHN SUMMA, AN INTRODUCTION TO MANAGED FUTURES, 25/6/2019,
HTTPS://WWW.INVESTOPEDIA.COM/ARTICLES/OPTIONINVESTOR/05/070605.ASP
24
JAMES CHEN, MANAGED FUTURES, 29/7/2019,
HTTPS://WWW.INVESTOPEDIA.COM/TERMS/M/MANAGED-FUTURES.ASP
25
17
EVENT DRIVEN
Distressed Debt
In Distressed debt investing, managers consciously purchase debts of a troubled company in hope to
profit if the company turns around26.
Ironically, Because the company is at risk of defaulting, the willingness to buy debt in a troubled
company may prevent its bankruptcy. Since investors normally panic, this scenario causes bond prices
to fall, as a result, a company’s distressed debts are often offered with a discount. As a consequence,
investors gain increasingly control in the company acquiring active roles in the business.
An example of distressed debt investing would be the purchase of a bond from a company that is at
risk at default at a major discount, a $1000 bond for $400. 27
Given that the investor’s payoff depends on whether the company fails or succeeds, If the turnaround
doesn’t take place, the company goes bankruptcy. However, distressed debt investors still benefit of
a priority status in being paid back, ahead of shareholders and even employees28.
Merger Arbitrage
Merger Arbitrage is an event driven investment strategy that simultaneously buys and sells the stocks
of two merging companies where the investor aims to take advantage of market inefficiencies in a
business takeover. Typically, in merger arbitrage investing, the investor plays long in the shares of
the prey and short those of the predator 29 . (Predator is the term referred to a financially strong
company that eats up another in a merger or acquisition30). To understand Merger arbitrage It is
26
TIM LEMKE, WHAT IS DISTRESSED DEBT INVESTING AND HOW DOES IT WORK?, 17/3/2019,
HTTPS://WWW.THEBALANCE.COM/DISTRESSED-DEBT-INVESTING-AND-HOW-IT-WORKS-4176037
27
KATANA HALEY, KEY TAKEAWAYS ON DISTRESSED DEBT INVESTING,
HTTPS://MEDIUM.COM/DATADRIVENINVESTOR/DISTRESSED-DEBT-INVESTING-CONSISTS-OF-
INVESTING-IN-COMPANIES-THAT-ARE-IN-TROUBLE-47B34CD86E4F
28
29
30
WILL KENTON, PREDATOR, 25/6/2019,
HTTPS://WWW.INVESTOPEDIA.COM/TERMS/P/PREDATOR.ASP
18
relevant to know that corporate mergers are divided in two categories: cash mergers and stock-for-
stock mergers. In broad terms, Cash mergers acquire shares of the target company for cash at a
discount and would hold until the deal closes, having then the speculator receive cash for each share
owned. As for Stock-for-stock mergers, the acquiring company exchanges its own stock for the stock
of the target company31, in this case profit lies between the spread of the two companies past the
announcement. However, if the deal fails, the shares of the prey will fall and those of the predator
will rise, causing the investor to lose money in both positions.
Activist Funds
Activist Hedge funds make large investment in companies lacking adequate management and results
in shareholder value. More specifically, the strategy is a long-term oriented strategy and aims to
participate in the firm’s decision making by winning a great number of board seats. It is important to
understand that no company is too large, too popular, too new or too successful to consider itself
immune from hedge fund activism 32 because even with a small stake, activists can influence the
executive board since who may fear a shareholder revolt.33
However, it is also true that not all Activist Funds employ aggressive tactics, given that funds
adopting softer engagement with executives and those who are occasional activists also exist in the
industry. At the current state, Investor activism is widespread in the US and it is shifting its attention
to Europe and the world, with a global increase of 9 percent per annum. 34Having Elliot Management
as the most active and aggressive activist in 2018, targeting 24 companies 35and Carl Icahn as the best
know activist to date, who made activists investments in large companies including Time Warner and
Blockbuster.36
31
UNDERSTANDING MERGER ARBITRAGE, 5/2/2012,
HTTPS://WWW.BARCLAYHEDGE.COM/HEDGE-FUND-STRATEGY-MERGER-ARBITRAGE/
32
MARTIN LIPTON, WACHTELL LIPTON, ROSEN & KATZ, 25/1/2019,
HTTPS://CORPGOV.LAW.HARVARD.EDU/2019/01/25/DEALING-WITH-ACTIVIST-HEDGE-FUNDS-
AND-OTHER-ACTIVIST-INVESTORS-2/
33
34
SEAN BROWN, THE PROS AND CONS OF ACTIVIST INVESTORS, 5/2019,
HTTPS://WWW.MCKINSEY.COM/BUSINESS-FUNCTIONS/STRATEGY-AND-CORPORATE-
FINANCE/OUR-INSIGHTS/THE-PROS-AND-CONS-OF-ACTIVIST-INVESTORS
35
36
ACTIVIST HEDGE FUNDS, HTTP://WWW.STREETOFWALLS.COM/ARTICLES/HEDGE-FUND/LEARN-
THE-BASICS/ACTIVIST-HEDGE-FUNDS/
19
MULTI-STRATEGY FUNDS
Managers in Multi-strategy funds diversify their businesses and employ several investment strategies
altogether with the objective to deliver a positive and consistent return regardless of factors such as:
the directional movement of the equity, interest rate or currency market 37. Unlike Single-Strategy
funds, Multi-strategy funds are more flexible. Capital can be allocated across several strategies (silo
approach) and shifting freely from less profitable strategies to more profitable ones when
opportunities arise is possible. Moreover, it is relevant to comprehend the value of diversification in
a Multi-strategy fund which reduces the risks of a typical Single-Strategy fund, hence providing
overall high risk-adjusted returns.
37
ERIC STARR, STARR CAPITAL MANAGEMENT, MULTI-STRATEGY HEDGE FUNDS- STRATEGY
OUTLINE, 5/2004,
HTTP://WWW.EUREKAHEDGE.COM/RESEARCH/NEWS/1048/MULTI_STRATEGY_HEDGE_FUNDSST
RATEGY_OUTLINE
20
CHAPTER 3: HEDGE FUNDS’ AND THEIR MARKET
21
HEDGE FUND INDUSTRY AND ITS HISTORICAL GROWTH
Hedge funds are one of the fastest growing sectors of the financial services industry, registering a
growth both in its Assets Under Management and in its numbers of funds: between 1997 and 2018
the total number AUM increased by 2335%, additionally, considering that by 1968 there were
approximately 200 Hedge funds38, the number of operating Hedge funds jumped from 2,000 in the
year 2002 to jump furthermore to its peak of 10,000 by the end of 201539.
The following graph and dataset recorded the growth of Assets Managed by Hedge funds from the
year 2000 to Q1 of 2019. Significant recessions in the Assets managed by Hedge Funds were
spotted only during the years of 2008, 2009 and 2010 which can be intuitively linked to the 2008’s
Financial Crisis. Prior to that, its highest Amount of AUM by Hedge funds was registered in Q2 of
2007 with 2.348,84 Billion Dollars. After the brief decline, the dataset continued with an
incremental trend, establishing its highest till date in Q3 of 2018 with 3.064,87 Billion Dollars.
Hedge Fund Industry AUM

in $ Billions
2019 Q1
2018 Q1
2017 Q1
2016 Q1
2015 Q1
2014 Q1
2013 Q1
2012 Q1
2011 Q1
2010 Q1
2009 Q1
2008 Q1
2007 Q1
2006 Q1
2005 Q1
2004 Q1
2003 Q1
2002 Q1
2001 Q1
2000 Q1
$- $1.000,00$2.000,00$3.000,00$4.000,00
38
39
22
HISTORICAL GROWTH OF ASSETS UNDER MANAGEMENT
YEAR $ BILLIONS YEAR $ BILLIONS

2000 Q1 $ 214,34 2010 Q1 $ 1.341,27
2000 Q2 $ 225,80 2010 Q2 $ 1.292,34
2000 Q3 $ 247,21 2010 Q3 $ 1.354,62
2000 Q4 $ 263,46 2010 Q4 $ 1.402,73
2001 Q1 $ 292,92 2011 Q1 $ 1.510,36
2001 Q2 $ 329,05 2011 Q2 $ 1.580,45
2001 Q3 $ 346,32 2011 Q3 $ 1.399,51
2001 Q4 $ 370,30 2011 Q4 $ 1.408,39
2002 Q1 $ 393,28 2012 Q1 $ 1.507,99
2002 Q2 $ 417,53 2012 Q2 $ 1.467,75
2002 Q3 $ 428,13 2012 Q3 $ 1.508,63
2002 Q4 $ 455,41 2012 Q4 $ 1.481,92
2003 Q1 $ 517,57 2013 Q1 $ 1.606,74
2003 Q2 $ 596,10 2013 Q2 $ 1.582,91
2003 Q3 $ 671,29 2013 Q3 $ 1.760,03
2003 Q4 $ 781,39 2013 Q4 $ 1.883,75
2004 Q1 $ 918,18 2014 Q1 $ 2.023,06
2004 Q2 $ 1.010,31 2014 Q2 $ 2.067,03
2004 Q3 $ 1.075,77 2014 Q3 $ 2.066,99
2004 Q4 $ 1.185,73 2014 Q4 $ 2.024,83
2005 Q1 $ 1.242,85 2015 Q1 $ 2.099,06
2005 Q2 $ 1.262,29 2015 Q2 $ 2.263,04
2005 Q3 $ 1.304,14 2015 Q3 $ 2.244,69
2005 Q4 $ 1.319,13 2015 Q4 $ 2.219,24
2006 Q1 $ 1.409,16 2016 Q1 $ 2.322,57
2006 Q2 $ 1.464,40 2016 Q2 $ 2.371,18
2006 Q3 $ 1.589,45 2016 Q3 $ 2.412,63
2006 Q4 $ 1.695,83 2016 Q4 $ 2.367,48
2007 Q1 $ 1.870,30 2017 Q1 $ 2.451,77
2007 Q2 $ 2.084,65 2017 Q2 $ 2.594,34
2007 Q3 $ 2.214,13 2017 Q3 $ 2.780,90
2007 Q4 $ 2.295,46 2017 Q4 $ 2.905,67
2008 Q1 $ 2.263,09 2018 Q1 $ 2.993,66
2008 Q2 $ 2.348,84 2018 Q2 $ 3.014,30
2008 Q3 $ 1.963,70 2018 Q3 $ 3.064,87
2008 Q4 $ 1.449,76 2018 Q4 $ 2.878,10
2009 Q1 $ 1.164,23 2019 Q1 $ 3.011,30
2009 Q2 $ 1.189,41
2009 Q3 $ 1.303,71
DATABASE: BARCLAYHEDGE40
40
THE HEDGE FUND INDUSTRY, HTTPS://WWW.BARCLAYHEDGE.COM/SOLUTIONS/ASSETS-
UNDER-MANAGEMENT/HEDGE-FUND-ASSETS-UNDER-MANAGEMENT/HEDGE-FUND-INDUSTRY/
23
REGIONAL BREAKDOWN OF HEDGE FUNDS
The Following data shows the overall Value of Assets Managed by Hedge funds Worldwide and
the geographical location reported by their managers.
From the data it is relevant to notice that by breaking down the Industry by its geographic location,
for 2018 the Highest reported region was the “UK” and its Lowest was the Rest of Europe. While
only 22% of Hedge funds reported to be located in North America, however it is also true that the
New York Hedge fund industry alone in 2018 Managed 1,24 Trillion Dollars of Assets,
representing 43% of the Assets globally managed by Hedge funds.
VALUE OF ASSETS MANAGED BY HEDGE FUNDS (2018)
VALUE OF ASSETS MANAGED BY HEDGE FUNDS WORLDWIDE 2,91 TR U.S. DOLLARS

SIZE OF HEDGE FUND INDUSTRY IN NEW YORK 1,24 TR U.S. DOLLARS
REST OF THE WORLD 1,67 TR U.S. DOLLARS
DATABASE: STATISTA41
REGIONAL BREAKDOWN OF MANAGERS (2018)
ASIA-PACIFIC 23%
EUROPE EX-UK 14%
NORTH AMERICA 22%
REST OF THE WORLD 6%
UK 36%
DATABASE: GPP GROUP42
41
M. SZMIGIERA, ASSETS UNDER MANAGEMENT OF HEDGE FUNDS WORLDWIDE 1997-2018,
1/3/2019, HTTPS://WWW.STATISTA.COM/STATISTICS/271771/ASSETS-OF-THE-HEDGE-FUNDS-
WORLDWIDE/
42
EVOLUTION OF THE BILLION-DOLLAR HEDGE FUND”, GPP GROUP. P10.
24
VALUE OF ASSETS MANAGED BY FUNDS WOLRD WIDE
SIZE OF HEDGE FUND INDUSTRY

IN NEW YORK; 43%
REST OF THE WORLD

; 57%
REGIONAL BREAKDOWN OF MANAGERS
ASIA-PACIFIC
23%
UK 36%
EUROPE EX-UK
14%
REST OF THE
WORLD 6% NORTH
AMERICA 22%
25
HEDGE FUNDS AND GROWTH RATE BY REGION
The data displays the Regional Growth Rate of Hedge funds in 2018, with Asia being the highest
growing region with a growing rate of 11,80%, Africa the lowest with 0,90% and the Rest of the
World ranging approximately from 1,9% to 4,40%.
ORGANIC GROWTH RATE BY REGION (2018)
UNITED STATES 1,90%

CROSS-BORDER 2,20%
EUROPE 2,40%
ASIA 11,80%
OCEANIA 2,00%
LATIN AMERICA 4,40%
CANADA 3,10%
AFRICA 0,90%
OTHER EUROPE 12,60%
DATABASE: MORNINGSTAR43
ORGANIC GROWTH RATE BY REGION

OTHER EUROPE 12,60%
AFRICA 0,90%
CANADA 3,10%
LATIN AMERICA 4,40%
OCEANIA 2,00%
ASIA 11,80%
EUROPE 2,40%
CROSS-BORDER 2,20%
UNITED STATES 1,90%
0,00% 2,00% 4,00% 6,00% 8,00% 10,00% 12,00% 14,00%
43
KEVIN MCDEVITT AND MICHAEL SCHRAMM, GLOBAL FUND FLOWS SHOW GEOGRAPHIC
CONSISTENCY, 14/02/2019, HTTPS://WWW.MORNINGSTAR.COM/BLOG/2019/02/14/GLOBAL-
FUND-FLOWS.HTML
26
INVESTMENT STRATEGIES AND MARKET DIMENSION
The following table displays the Assets Under Management by each Investment Strategy in Q1
2019, Q2 2018 and Q3 2018, having its highest concentration in Fixed Income Strategy for all of
the three quarters considered. By incorporating an additional column measuring the Net Growth of
AUM from Q4 2018 to Q1 2019-time interval, it results that Fixed Income Strategy is one of the
highest ones with a net growth of 28,2 Billion Dollars.
IN U.S. BILLION DOLLARS Q1 2019 -Q4 2018

ASSETS UNDER MANAGMENT Q1 2019 Q4 2018 Q3 2018 NET GROWTH
Balanced (Stock & Bonds) 299,3 248,3 253,7 51
Convertible Arbitrage 19,25 18,5 19 0,75
Distressed Securities 61,7 68,2 73,6 -6,5
Emerging Markets 281,9 262 273,9 19,9
Emerging Markets-Asia 117,4 103,2 108,5 14,2
Emerging Markets-Eastern Europe 14,7 14,2 14,8 0,5
Emerging Markets-Global 126,8 122,5 127,8 4,3
Emerging Markets-Latin America 11,1 10,58 11,4 0,52
Equity Long Bias 332,4 324,2 345 8,2
Equity Long/Short 209,3 215,2 225,3 -5,9
Equity Long-Only 144,8 139,2 163 5,6
Equity Market Neutral 91,5 91,7 98,6 -0,2
Event Driven 141,2 137,4 149,2 3,8
Fixed Income 584,1 555,9 575,1 28,2
Macro 186,9 185,1 204 1,8
Merger Arbitrage 67,2 64,4 66,08 2,8
Multi-Strategy 313,03 309,3 330,7 3,73
Options Strategies 48,18 49,2 54,4 -1,02
Other 58,1 58,4 61,7 -0,3
Sector Specific 172,7 151,1 171,6 21,6
DATABASE: BARCLAYHEDGE44
44
HEDGE FUND INDUSTRY ASSETS UNDER MANAGEMENT,
HTTPS://WWW.BARCLAYHEDGE.COM/SOLUTIONS/ASSETS-UNDER-MANAGEMENT/HEDGE-FUND-
ASSETS-UNDER-MANAGEMENT/
27
INVESTMENT STRATEGIES AND RETURNS
The following data reports the returns of each Investment Strategy. In January 2019 the top
performing strategies reported were: Equity Long bias, Emerging Market, CDO, and Event Driven
with returns ranging from 5,38% to 3,76%. On the other hand, the least profitable strategies in 2019
were: CTA, Fixed Income Arbitrage and Equity Market Neutral, with respectively -0,48% and 0,61%
return.
1- Year 3- Year 5- Year 10 Year

JAN 2019 Net Annualized Annualized Annualized
FUND STRATEGY Returns Returns Net Returns Net Returns Net Returns
CDO 3,25 3,99 11,93 8,34 23,4

Asset Backed Securities 0,99 5,25 8,22 8,13 15
Mortgage-Backed
Securities 0,47 3,73 5,03 5,14 10,16
Asset-Backed Loans 0,56 6,73 7,58 7,57 8,81
Barclay Convertible
Arbitrage 2,26 -0,02 2,53 1,81 8,29
Credit Long/Short 1,41 -0,27 3,84 3,21 7,25
Distressed Securities 1,71 0,28 6,1 1,61 7,2
Equity Long Bias 5,83 -8,83 3,03 2,17 7,11
Fixed Income Arbitrage 0,61 0,43 3,32 3,61 7,08
Event Driven 3,76 -2,68 5,49 2,7 6,5
Multi-Strategy 1,98 -4,92 1,72 2,31 5,88
Emerging Market 4,28 -10,89 5,17 2,1 5,73
Merger Arbitrage 1,38 0,33 3,86 4,04 4,93
Equity Long/Short 2,78 -3,04 2,28 2,45 4,82
European Equities 2,78 -3,15 0,21 1,79 4,7
Equity Market Neutral 0,61 -1,7 0,59 2,29 2,52
Global Macro 1,8 -5,33 0,02 1,24 2,37
CTA -0,48 -3,05 -1,2 0,44 0,26
S&P 500 Total Return

Index 8,01 -4,38 9,26 8,49 13,12
BarclayHedge Fund Index 3,72 -5,23 3,53 2,69 5,95
J.P. Morgan Global
Government Bond Index 0,71 1,02 1,76 2,97 2,96
DATABASE: BARCLAY HEDGE45
45
ERIC UHLFELDER, THE HEDGE FUND STRATEGIES THAT ACTUALLY WORK, 9/5/2019
HTTPS://WWW.WORTH.COM/THE-HEDGE-FUND-STRATEGIES-THAT-ACTUALLY-WORK/
28
0,26 RETURNS BY INVESTMENT STRATEGY
0,44
CTA
-1,2 10 Year AnnualizedNet Returns
-3,05
-0,48
5- Year Annualized Net Returns
2,37
1,24 3- Year Annualized Net Returns
Global Macro 0,02
-5,33
1,8 1- Year Net Returns
2,52 JAN 2019 Returns
2,29
Equity Market Neutral 0,59
-1,7
0,61
4,7
1,79
European Equities 0,21
-3,15
2,78
4,82
2,45
Equity Long/Short 2,28
-3,04
2,78
4,93
Merger Arbitrage 4,04
3,86
0,33
1,38
5,73
Emerging Market 2,1
5,17
-10,89
4,28
5,88
2,31
Multi-Strategy 1,72
-4,92
1,98
6,5
2,7
Event Driven 5,49
-2,68
3,76
7,08
Fixed Income Arbitrage 3,61
3,32
0,43
0,61
7,11
Equity Long Bias 2,17
3,03
-8,83
5,83
7,2
1,61
Distressed Securities 6,1
0,28
1,71
7,25
3,21
Credit Long/Short 3,84
-0,27
1,41
8,29
Barclay Convertible Arbitrage 1,81
2,53
-0,02
2,26
8,81
7,57
Asset-Backed Loans 7,58
6,73
0,56
10,16
5,14
Mortgage-Backed Securities 5,03
3,73
0,47
15
8,13
Asset Backed Securities 8,22
5,25
0,99
23,4
8,34
CDO 11,93
3,99
3,25
-15 -10 -5 0 5 10 15 20 25 30 29
JAN 2019 RETURNS BY STRATEGY
CTA
-0,48
Global Macro 1,8
Equity Market Neutral 0,61
European Equities 2,78
Equity Long/Short 2,78
Merger Arbitrage 1,38
Emerging Market 4,28
Multi-Strategy 1,98
Event Driven 3,76
Fixed Income Arbitrage 0,61
Equity Long Bias 5,83
Distressed Securities 1,71
Credit Long/Short 1,41
Barclay Convertible Arbitrage 2,26
Asset-Backed Loans 0,56
Mortgage-Backed Securities 0,47
Asset Backed Securities 0,99
CDO 3,25
-1 0 1 2 3 4 5 6 7
30
HEDGE FUNDS’ PERFORMANCES IN 2018: Bloomberg Report 2019
In order to properly terminate the study on Hedge funds’ and their Market, by including the
following Bloomberg report I hope to inform the reader on the latest performances of Hedge funds
in the Financial Market, hence allowing the reader to make further considerations.
More specifically, The Bloomberg report included in this section displays the performance of
Hedge funds categorized by strategy and corresponding returns in 2018, defining them in three
main classes: “the Good”, “The Bad” and “The Ugly”. Intuitively, with the data from the
Bloomberg report, the Good performers can be grouped by strategy outlining Relative Frequencies
and Average Returns as reported in the table below. It is noticeable that the most adopted strategy
among the Good performers is L/S Equity with an Average Return of 16,41%, followed by Macro
Strategy with an Average Return of 23,18%.
GOOD PERFORMERS GROUPED BY STRATEGY
STRATEGY Absolute Frequency Relative Freqeuncy Average Return
Macro 6 0,272727273 23,18333333

Energy 1 0,045454545 52,7
L/S Equity 8 0,363636364 16,4125
Distressed 1 0,045454545 16,2
Quant 1 0,045454545 14,3
Event-driven 1 0,045454545 13,6
Multi-strategy 4 0,181818182 6,45
31
Bloomberg Report 2019
32
SOURCE: BLOOMBERG46
46
HTTPS://WWW.BLOOMBERG.COM/NEWS/ARTICLES/2019-01-09/HEDGE-FUND-PERFORMANCE-
IN-2018-THE-GOOD-THE-BAD-AND-THE-UGLY
33
REFERENCE LIST
EVOLUTION OF THE BILLION-DOLLAR HEDGE FUND”, GPP GROUP

DANIEL A. STRACHMAN, 2012, “THE FUNDAMENTALS OF HEDGE FUND MANAGEMENT”
THEIR ADVANTAGES”, THE ECONOMIST NEWSPAPER LTD.
POTENTIAL AND ASSESSING RISKS”, JOHN WILEY & SONS, INC.
IRENE FINEL-HONIGMAN, 2010, “A CULTURAL HISTORY OF FINANCE”, ROUTLEDGE EXPLORATIONS

IN ECONOMIC HISTORY.
THOMAS KIRCHNER, 2009, “MERGER ARBITRAGE HOW TO PROFIT FROM EVENT-DRIVEN

ARBITRAGE”, WILEY FINANCE.
DATABASES
BARCLAYHEDGE
EUREKAHEDGE
MORNINGSTAR
PREQIN
34
WEBSITES
Bloomberg:
HTTPS://WWW.BLOOMBERG.COM/NEWS/ARTICLES/2019-01-09/HEDGE-FUND-PERFORMANCE-
IN-2018-THE-GOOD-THE-BAD-AND-THE-UGLY
Barclay Hedge:
UNDERSTANDING MERGER ARBITRAGE, 5/2/2012, HTTPS://WWW.BARCLAYHEDGE.COM/HEDGE-
FUND-STRATEGY-MERGER-ARBITRAGE/
THE HEDGE FUND INDUSTRY, HTTPS://WWW.BARCLAYHEDGE.COM/SOLUTIONS/ASSETS-UNDER-

MANAGEMENT/HEDGE-FUND-ASSETS-UNDER-MANAGEMENT/HEDGE-FUND-INDUSTRY/
HTTPS://WWW.BARCLAYHEDGE.COM/SOLUTIONS/ASSETS-UNDER-MANAGEMENT/HEDGE-FUND-
ASSETS-UNDER-MANAGEMENT/
Morning Star:
KEVIN MCDEVITT AND MICHAEL SCHRAMM, GLOBAL FUND FLOWS SHOW GEOGRAPHIC
CONSISTENCY, 14/02/2019,
HTTPS://WWW.MORNINGSTAR.COM/BLOG/2019/02/14/GLOBAL-FUND-FLOWS.HTML
HEDGE FUND INDUSTRY ASSETS UNDER MANAGEMENT,
Eureka Hedge:
ERIC STARR, STARR CAPITAL MANAGEMENT, MULTI-STRATEGY HEDGE FUNDS- STRATEGY
OUTLINE, 5/2004,
HTTP://WWW.EUREKAHEDGE.COM/RESEARCH/NEWS/1048/MULTI_STRATEGY_HEDGE_FUNDSST
RATEGY_OUTLINE
Statista:
M. SZMIGIERA, ASSETS UNDER MANAGEMENT OF HEDGE FUNDS WORLDWIDE 1997-2018,
1/3/2019, HTTPS://WWW.STATISTA.COM/STATISTICS/271771/ASSETS-OF-THE-HEDGE-FUNDS-
WORLDWIDE/
Quants Portal:
FUND AUDITOR, HTTP://WWW.QUANTSPORTAL.COM/FUND-AUDITORS/
McKinsey:
SEAN BROWN, THE PROS AND CONS OF ACTIVIST INVESTORS, 5/2019,
HTTPS://WWW.MCKINSEY.COM/BUSINESS-FUNCTIONS/STRATEGY-AND-CORPORATE-
FINANCE/OUR-INSIGHTS/THE-PROS-AND-CONS-OF-ACTIVIST-INVESTORS
Harvard:
35
Quantisti:
ANUPRIYA GUPTA & MILING PARADKAR, ARBITRAGE STRATEGIES: UNDERSTANDING WORKING OF
STATISTICAL ARBITRAGE, 28/11/2017, HTTPS://WWW.QUANTINSTI.COM/BLOG/STATISTICAL-
ARBITRAGE
Iamgroup:
Corporate Finance Institute:

HTTPS://CORPORATEFINANCEINSTITUTE.COM/RESOURCES/KNOWLEDGE/TRADING-
INVESTING/GLOBAL-MACRO-STRATEGY/
The Balance:
Medium:
KATANA HALEY, KEY TAKEAWAYS ON DISTRESSED DEBT INVESTING,
HTTPS://MEDIUM.COM/DATADRIVENINVESTOR/DISTRESSED-DEBT-INVESTING-CONSISTS-OF-
INVESTING-IN-COMPANIES-THAT-ARE-IN-TROUBLE-47B34CD86E4F
Street of Walls:
ACTIVIST HEDGE FUNDS, HTTP://WWW.STREETOFWALLS.COM/ARTICLES/HEDGE-FUND/LEARN-
THE-BASICS/ACTIVIST-HEDGE-FUNDS/
Forbes:
SHAM GAD, WHAT ARE HEDGE FUNDS?, 22/11/2013,
HTTPS://WWW.FORBES.COM/SITES/INVESTOPEDIA/2013/10/22/WHAT-ARE-HEDGE-
FUNDS/#D21F6B048EE3
Worth:
ERIC UHLFELDER, THE HEDGE FUND STRATEGIES THAT ACTUALLY WORK, 9/5/2019
HTTPS://WWW.WORTH.COM/THE-HEDGE-FUND-STRATEGIES-THAT-ACTUALLY-WORK/
Investopedia:
JAMES CHEN, MARKET NEUTRAL, 17/5/2018,

HTTPS://WWW.INVESTOPEDIA.COM/TERMS/M/MARKETNEUTRAL.ASP
JAMES CHEN, MANAGED FUTURES, 29/7/2019,

HTTPS://WWW.INVESTOPEDIA.COM/TERMS/M/MANAGED-FUTURES.ASP
JOHN SUMMA, AN INTRODUCTION TO MANAGED FUTURES, 25/6/2019,

HTTPS://WWW.INVESTOPEDIA.COM/ARTICLES/OPTIONINVESTOR/05/070605.ASP
36
WILL KENTON, PREDATOR, 25/6/2019,
HTTPS://WWW.INVESTOPEDIA.COM/TERMS/P/PREDATOR.ASP
Wikipedia:
HTTPS://EN.WIKIPEDIA.ORG/WIKI/PRIME_BROKERAGE
37
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HEDGE FUNDS' STRATEGIES AND THEIR MARKET

Thesis · July 2019

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ECONOMIA DELLE BANCHE, DELLE ASSICURAZIONI E DEGLI

HEDGE FUNDS’ STRATEGIES AND THEIR MARKET

Relatore: Prof. Paola Agnese Bongini

Tesi di Laurea di:

Anno Accademico 2018/2019

CHAPTER 1: GENESIS AND STRUCTURE OF HEDGE FUNDS 5

GENESIS AND KEY ELEMENTS OF HEDGE FUNDS 6

LEGAL STRUCTURE AND PARTIES INVOLVED 8

CHAPTER 2: HEDGE FUND INVESTMENT STRATEGIES 12

CHAPTER 3: HEDGE FUNDS’ AND THEIR MARKET 21

HEDGE FUND INDUSTRY AND ITS HISTORICAL GROWTH 22

In this paper we analyze Hedge Funds’Strategies and their Market.

STATE RETIREMENT PLAN,

SOURCE: HEDGE FUND FUNDAMENTALS

More specifically, the Qualified Investors of a Hedge funds are:

-FOUNDATIONS AND NON-PROFIT ORGANIZATIONS

SOURCE: GPP GROUP12

SOURCE: MAURY CARTINE, JD, CPA 14

SOURCE: MAURY CARTINE, JD, CPA 15

Fixed income arbitrage

Global Macro Managers

Managed Futures or Commodity Trading Advisors

Hedge Fund Industry AUM

YEAR $ BILLIONS YEAR $ BILLIONS

VALUE OF ASSETS MANAGED BY HEDGE FUNDS (2018)

VALUE OF ASSETS MANAGED BY HEDGE FUNDS WORLDWIDE 2,91 TR U.S. DOLLARS

REGIONAL BREAKDOWN OF MANAGERS (2018)

DATABASE: GPP GROUP42

SIZE OF HEDGE FUND INDUSTRY

REST OF THE WORLD

REGIONAL BREAKDOWN OF MANAGERS

ORGANIC GROWTH RATE BY REGION (2018)

UNITED STATES 1,90%

ORGANIC GROWTH RATE BY REGION

LATIN AMERICA 4,40%

UNITED STATES 1,90%

0,00% 2,00% 4,00% 6,00% 8,00% 10,00% 12,00% 14,00%

IN U.S. BILLION DOLLARS Q1 2019 -Q4 2018

1- Year 3- Year 5- Year 10 Year

CDO 3,25 3,99 11,93 8,34 23,4

S&P 500 Total Return

DATABASE: BARCLAY HEDGE45

Global Macro 1,8

Equity Market Neutral 0,61

European Equities 2,78

Equity Long/Short 2,78

Merger Arbitrage 1,38

Emerging Market 4,28

Event Driven 3,76

Fixed Income Arbitrage 0,61

Equity Long Bias 5,83

Distressed Securities 1,71

Credit Long/Short 1,41

Barclay Convertible Arbitrage 2,26

Asset-Backed Loans 0,56

Mortgage-Backed Securities 0,47

Asset Backed Securities 0,99

GOOD PERFORMERS GROUPED BY STRATEGY

STRATEGY Absolute Frequency Relative Freqeuncy Average Return