[...]... arbitrageurs are typically long the stock of the company being acquired and short the stock of the acquiring company The risk to the arbitrageur is that the deal fails Risk arbitrageurs seek to capture the price differential between the stock of the target and the stock of the acquirer Profits result as the price of the target stock converges with the stock price of the acquirer Risk arbitrage positions... word-ofmouth references to grow their assets The majority of funds were organized as limited partnerships, allowing only 99 investors; the hedge fund managers, therefore, required high minimum investments European investors were 16 HEDGE FUNDS quick to see the advantages of this new breed of manager, which fueled the development of the more tax-efficient offshore funds In the United States and Europe, the. .. hedge fund industry of the 1980s was an exclusive club of wealthy individuals and their private bankers Hedge funds currently represent one of the fastest growing segments of the investment management community During the 1990s, the number of funds increased at an average rate of 25.74 percent per year, showing a total growth of 648 percent (including funds of funds) The reason for the unprecedented... funds in the whole industry However, in excess of 90 percent of the U.S $400 billion under management in the industry is managed by some 2,600 funds About one-third of the funds but more than 90 percent of the fund managers are domiciled in the United States (see Figure 2.2 and Figure 2.3) It is often observed that the overall size of the industry differs, depending upon one’s source of information There... critical to the welfare of the citizens of developed and emerging countries The theme of this book is wealth preservation Alternative investments are strategic wealth preservation vehicles and strategies They are not necessarily speculative They afford hedging protection and return enhancement when prudently employed Being informed about the structure and nature of these alternatives is the first step... terms are augmented by the positive selection of alpha intrinsic in the structure of all hedge funds Hedge funds are paid to trade —and have the incentive to do so—when others cannot, will not, or need to be on the other side 13 14 HEDGE FUNDS Further, this chapter offers a summary of the current size of the industry, explains the 10 primary categories of hedge funds, and analyzes key industry issues... Factors at the root of this difficulty include dealing with the issue of idea generation, the problems of asset size versus performance, and the question of determining which parts of the investment landscape are best suited for that most illusive of quarry—tradable market inefficiencies This exercise will lead us to a rather unconventional conclusion: Hedge funds and other alternative investments. .. tilled the soil of his intellect quite well indeed He left school at the tender age of 14 to pursue his career as a speculator By his mid-20s, he had amassed a fortune on the stock market He retired from business at the age of 42 and spent the remainder of his life as a member of Parliament Ricardo’s other great contribution to economics is the law of comparative cost, which demonstrated the benefits of. .. established the first hedge fund, the hedge Sfund industry continues to be one of the most misrepresented and misunderstood areas of finance The often trumpeted spectacular successes of the likes of George Soros and Julian Robertson over the last two decades, contrasted with the dramatic losses of Long Term Capital Management and others in 1998, have done little to advance understanding of an industry... limit their activities to a single market (such as the United States) or they may invest globally There are two components to the overall return from a convertible arbitrage position: static return and volatility return The static return is comprised of the coupon from the convertible bond plus the interest rebate on the cash from the short sale minus the dividend on the underlying short stock The volatility .