Hedge FundsHedge Funds

AgendaAgenda

Hedge Funds - An Overview.Hedge Funds - An Overview.

Overview of Hedge Fund Overview of Hedge Fund administration.administration.

About IFS.About IFS.

Hedge Fund OverviewHedge Fund Overview

Hedge Funds- OverviewHedge Funds- Overview

A Hedge Fund can be defined as an A Hedge Fund can be defined as an investment strategy that employs both long investment strategy that employs both long and short positions, uses leverage and and short positions, uses leverage and derivatives, and is much less dependent on derivatives, and is much less dependent on market direction than long-only market direction than long-only investments such as stocks, bonds and investments such as stocks, bonds and mutual funds. Hedge funds are private mutual funds. Hedge funds are private pooled investment limited partnerships pooled investment limited partnerships which fall outside many of the rules and which fall outside many of the rules and regulations governing mutual funds.regulations governing mutual funds.

Hedge Funds- Overview Hedge Funds- Overview Contd.Contd.

Hedge funds are limited liability Hedge funds are limited liability partnerships, largely unregulated, that are partnerships, largely unregulated, that are open to the relatively wealthy.open to the relatively wealthy.

First hedge fund set up in 1949 in First hedge fund set up in 1949 in United StatesUnited States

EligibilityEligibility - Investors must have a net - Investors must have a net worth of $1 million or higher or an annual worth of $1 million or higher or an annual income in excess of $200,000 for the past income in excess of $200,000 for the past two years. It includes qualified individuals, two years. It includes qualified individuals, institutions, endowments, fund of funds, institutions, endowments, fund of funds, family offices, and pension fundsfamily offices, and pension funds

Hedge Funds- Overview Hedge Funds- Overview Contd.Contd.

Minimum investmentMinimum investment - - There is no standard as to There is no standard as to hedge fund minimum investments. it varies from $250,000 hedge fund minimum investments. it varies from $250,000 to $1mm depending on General Partnersto $1mm depending on General Partners

No. of InvestorsNo. of Investors - - LLimited to 499 investors ("limited partners") who can invest in any one fund

FeesFees – – Management fees 1-2% of Asset and Incentive Management fees 1-2% of Asset and Incentive fees 20-25% of profit earnedfees 20-25% of profit earned

SEC Registration requirementsSEC Registration requirements – – From 1 From 1 February, 2006 onwardsFebruary, 2006 onwards

Onshore Funds- >$25mm asset under managementOnshore Funds- >$25mm asset under management Offshore Funds - > 14 clients residents in United Offshore Funds - > 14 clients residents in United

StatesStates

Types of Hedge FundsTypes of Hedge Funds

Onshore FundsOnshore Funds Onshore funds are investment vehicles which are set up in United Onshore funds are investment vehicles which are set up in United

states/UKstates/UK

Offshore FundsOffshore Funds Offshore hedge funds are investment vehicles organized in Offshore hedge funds are investment vehicles organized in

offshore financial centers.offshore financial centers. Management of hedge funds is often conducted in or near major

international financial centers such as London and New York, but the actual fund is registered in an OFC.

These types of funds offer securities primarily to non-U.S. These types of funds offer securities primarily to non-U.S. investors and to U.S. tax-exempt investors.investors and to U.S. tax-exempt investors.

The advantage of an offshore hedge fund is that the investors in The advantage of an offshore hedge fund is that the investors in the fund generally are not subject to United States taxation, SEC the fund generally are not subject to United States taxation, SEC regulations, withholding taxesregulations, withholding taxes

The most widely used places are Bermuda, the Cayman Islands, The most widely used places are Bermuda, the Cayman Islands, Guernsey, Hong Kong, the Isle of Man, Jersey, Luxembourg, the Guernsey, Hong Kong, the Isle of Man, Jersey, Luxembourg, the British Virgin Islands and Dublin. These low-tax areas provide a British Virgin Islands and Dublin. These low-tax areas provide a welcoming environment for hedge funds. welcoming environment for hedge funds.

Global Growth ProspectsGlobal Growth Prospects Inflow of institutional capital.Inflow of institutional capital.

Increased investments from institutional investors like Pension Increased investments from institutional investors like Pension funds,Universities,Endowments,Charitable Organisation Etc.funds,Universities,Endowments,Charitable Organisation Etc.

Share of US Institutional investors in Hedge Funds to rise to Share of US Institutional investors in Hedge Funds to rise to 50% of hedge fund capital flow by 2008 from the just 28% in 50% of hedge fund capital flow by 2008 from the just 28% in 2004.2004.

Current total Hedge fund asset under Current total Hedge fund asset under management estimated at $1.13 trillion.management estimated at $1.13 trillion.

Expected annualized growth in hedge fund asset Expected annualized growth in hedge fund asset of 15% between 2006-2008.of 15% between 2006-2008.

Number of hedge funds to touch 9000 by Mar Number of hedge funds to touch 9000 by Mar

2007 from around 8000 funds as on Mar 20052007 from around 8000 funds as on Mar 2005. .

Top Hedge funds - USTop Hedge funds - US

Largest hedge funds Largest hedge funds –– US US

S.No.S.No. PlayerPlayer $Bn$Bn

11 Farallon Capital ManagementFarallon Capital Management 12.512.5

22 Bridgewater AssociatesBridgewater Associates 11.511.5

33 Goldman Sachs Asset ManagementGoldman Sachs Asset Management 11.311.3

44 Citadel Investment GroupCitadel Investment Group 11.011.0

55 Caxton AssociatesCaxton Associates 10.810.8

Top Hedge funds - UKTop Hedge funds - UK

Largest hedge funds - UKLargest hedge funds - UK

Sl.No.Sl.No. PlayerPlayer $Bn$Bn

11 GLG PartnersGLG Partners 11.211.2

22 Man InvestmentsMan Investments 11.111.1

33 Vega Asset ManagementVega Asset Management 11.111.1

44 Barclays Global InvestorsBarclays Global Investors 8.18.1

55 Brevan Howard Asset ManagementBrevan Howard Asset Management 7.47.4

Largest global fund of fundsLargest global fund of funds

Largest global fund of funds (end-2005)Largest global fund of funds (end-2005)S.No.S.No. PlayerPlayer $Bn$Bn

11 Man InvestmentsMan Investments 39.039.0

22 UBS Global Asset Management UBS Global Asset Management A&QA&Q

30.730.7

33 GAM Multi-ManagerGAM Multi-Manager 25.025.0

44 Permal GroupPermal Group 23.123.1

55 HSBC Republic HSBC Republic 18.818.8

Hedge Fund Administration- An Hedge Fund Administration- An OverviewOverview

ObjectiveObjective

Understanding the role of Hedge Understanding the role of Hedge Fund Administrators Fund Administrators

Services offeredServices offered

Global Presence Global Presence

Hedge Fund Hedge Fund AdministratorAdministrator

A hedge fund administrator services to A hedge fund administrator services to hedge fund clients and investors; supports hedge fund clients and investors; supports them administratively and operationally; them administratively and operationally; and provides financial, tax and compliance and provides financial, tax and compliance reporting. This includes audits and tax reporting. This includes audits and tax coordination; compliance services such as coordination; compliance services such as anti-money laundering and know-your-anti-money laundering and know-your-client procedures required by the Patriot client procedures required by the Patriot Act, and middle office services.Act, and middle office services.

Role of Hedge Fund Role of Hedge Fund Administrator Administrator

Perform critical, non-core administrative and Perform critical, non-core administrative and operational functions for hedge funds.operational functions for hedge funds.

Reduce the operating cost of the fund and Reduce the operating cost of the fund and investment adviser.investment adviser.

Relieve fund manager of necessary and time Relieve fund manager of necessary and time consuming operational duties.consuming operational duties.

Provide independent third-party verification and Provide independent third-party verification and reassurance of the fund to investors.reassurance of the fund to investors.

Role of Hedge Fund Administrator-Role of Hedge Fund Administrator-contcont..

Provide custodial services to safeguard the Provide custodial services to safeguard the investor monies and the assets of the investor monies and the assets of the fund.fund.

Provide access to accounting, finance and Provide access to accounting, finance and operations professionals and systems. operations professionals and systems.

In short, a hedge fund administrator In short, a hedge fund administrator provides support services to investors and provides support services to investors and business.business.

Types of services provided to Types of services provided to hedge fundshedge funds

Structure of a Hedge FundStructure of a Hedge Fund

Trade Cycle

Deal + NOE

Trade Allocation

Settlement / Delivery Instruction

Trade Details

Confirmation / Affirmation

Affirmed Confirm

Affirmed Confirm

Settlement Authorization

Settlement Confirmation

Investment Manager

Broker Dealer ExchangeCustodianDepository

Trade Instructions

Thank YouThank You