Hedge funds in Russia and in the world: rating, structure, reviews. Hedge funds are ...

A kind of shadow of the most diverse conjectures and theories has been dragging on for decades for every organization called a hedge fund. Unfortunately, this is still not surprising, and the true essence and specificity of the work remains a kind of dark horse, even for seasoned economists. In many respects this is provided by the term "hedge" in the name - in the financial management environment this, in general terms, means ensuring coverage of financial risks.

Of course, the delusion of customers about such organizations, which many in one way or another perceived solely as insurance against various troubled financial situations, were generously flavored by numerous positive reports from the funds themselves about the success of their activities. However, in reality this financial mechanism does not work as it is supposed to, and this is clearly what every investor interested in profit should know.

The essence and purpose of the organization

Hedge funds are a private investment partnership whose goal is to maximize profitability from investing funds for given risks or to reduce risks for a given profitability (this is exactly what the term "hedge" in the name means - from English protection, insurance ). The very essence of such funds lies in one simple idea of obtaining a constant profit based on the investment of investors, regardless of the current situation in the market: whether it is an unprecedented decline or tangible growth. For such tasks, sophisticated financial strategies are used, often including also leverage, the purchase of shares in long or short selling, and many others.

The whole spectrum of the most diverse financial operations that a fund can undertake is extremely wide. And exclusively risk management in the market is, rather, the prerogative of only certain hedge organizations, most of this aspect is only one of the possible tools for working with finance, but not the only function.

Most of the depositors' funds are invested by managers in publicly traded securities, however, in essence, they are able to invest literally in everything that, in their opinion and strategy, is able to further profit: land, real estate, commodity market, currency, The only restriction in this plan is prescribed directly in the fund's investment declaration.

At the same time, so many opportunities for investment in practice are not available to everyone who wants to multiply their wealth: access to the hedge fund is open to either "accredited" or professional investors whose equity capital should exceed a minimum of $ 1 million (excluding the cost of its main housing). This restriction exists with the fact that professional investors are already sufficiently prepared for the difficulties and risks that the broad investment declaration of hedge funds presupposes. The limit in the number of participating investors is determined by the US Securities and Exchange Commission and is 99 people maximum, at least 65 of which must be, as mentioned at the beginning, "accredited" (an investor whose net income, according to US law, Minimum $ 200 thousand). Given the breadth of possible actions of the fund, the risks can be extremely high, which at the legislative level obliges investors to invest in such a way that their total loss does not cause any damage to the family budget.

The birth of the revolution and its indelible mark on the world economy

A unique for its time and generation profit-making strategy was invented by the American economist Alfred Winslow Johnson, who in 1949 founded the first ever hedge fund. The authorship in the title hedged fund, similarly, belongs to him. He published the results of his work only six years later, in 1965, which produced a lot of noise and interest in the market. In it, he described in detail the entire strategic mechanism of earnings in a falling and growing market by using combinations of selling overvalued and buying undervalued stocks.

The first are securities, the current value of which is high, but at the same time there are some signs - factors, precursors of the fact that their price will collapse in the future. Undervalued - to the contrary, when the value of the shares is low, but they have any prerequisites and potential for growth.

Using in the generalized features the strategy described above, Jones achieved impressive results - the cost of his investments over a decade of the fund's existence reached 670%.

Successful strategy has received a huge spread, and by 1968 in the US the Securities and Exchange Commission registered about 140 investment partnerships that fell under the definition of "hedge fund."

However, the revolutionary financial idea for its time closer to 2008-2009 turned into a real financial catastrophe, widely known as a "great recession." Generated largely by numerous and increasingly complicated financial speculations, the world crisis of those years received considerable influence from the hedge funds themselves, and hedge funds are, in essence, speculative organizations. However, for the sake of objectivity, it should be noted that the first burst of the bubble of this financial storm was housing. Outstanding mortgages, at the astronomical scale, at that time, literally for everyone (in considerable numbers and those whose solvency at all could not close the issued debt obligations), pulled the whole financial and credit sector to their bottom, after which the crisis in full The extent spilled over to the real economy of the US and countries of other continents.

Playing down on shares of banks, investment hedge funds thereby only aggravated the growing financial panic, essentially catalyzing the economic collapse of a global scale. And although some of the guilt of these organizations for all that happened at that time is undeniable, but not only did they affect those events. The greed of the consumers themselves, which is in no way inferior to the greed of economists, has attracted huge credit debts to mass appearances, which in general were absolutely disproportionate to their ability to pay.

To date, the world has recovered from the severe consequences of the crisis, and the control over the activities of hedge funds has been substantially updated after a barely remediable blow to their image as financial institutions. In general, the world market has about 12,000 hedge funds, the asset management of which is estimated at trillions of US dollars. However, because of the complex and extremely complicated in most cases, the legal structure of these organizations, it is extremely difficult to calculate the more accurate sizes of the assets of specific funds.

Structural components of a single mechanism

Hedge funds are in most cases unique in their organization of partnership with many features and nuances. Some are incredibly complex and confusing, while others are treated as simply and transparently as possible - all this depends solely on the goals, strategies and methods of work of the fund. However, almost any structure of a hedge fund consists of the following key links:

• Investors are precisely those people whose assets are impossible for the existence and activities of the fund itself. The organization offers its investors services, those, in case of agreement, invest some part of their capital. After that, as a result of its correct use, on this basis, profit is obtained in the market, both for the client and for the fund.
• A guarantor bank, or a custodian, is a bank whose main task is to ensure the reliable storage of investors' assets, be it currency, securities, precious metals, etc. In some cases, the fund may attract its own bank for conducting and / Or registration of transactions (however, this is mainly a task for the primary broker) . In addition, the custodian also prepares reports on transactions made through the fund; Verification of the compliance of the real policy of the manager with the list of goals stated in the charter of the fund. Of course, in this role is usually a large bank with a solid positive reputation.
• Manager - a person or, as a rule, a company that determines the entire investment strategy, while answering for each of the decisions made by the fund. In addition, the hedge fund manager also manages all operating activities.
• The Board of Directors - oversees the activities of the manager, as well as the firms that provide services to the fund. The Board is authorized to resolve disputable and conflict issues between shareholders and managers, appoint personnel to key positions of the fund. It is the members of the council who bear personal responsibility (right up to the criminal one) for the observance of the principles and rules prescribed in the memorandum by the foundation.
• Administrator - determines the net asset value of the fund regardless of the manager, which gives a significant reduction in risks in the event of an estimated error of the latter. However, most administrators charge themselves with the functions of accounting reporting, payment of accounts, notification of shareholders with activity reports, distribution of profits received among shareholders, as well as subscription to shares and fund units and their repayment.
• Primary broker - in this role is usually a large investment bank, which does not perform one-off transactions on behalf of the hedge fund as an ordinary broker. The primary broker provides the fund with a number of professional services related to clearing (non-cash settlement between enterprises / companies / countries through goods / securities / services), depository services and operational support.
• Auditor - a person who verifies the compliance of the financial statements with accounting standards and financial legislation. The manager usually conducts an audit annually, but even such rare inspections in no way detract from this post in the structure of the organization - without the auditor other service companies or third-party agents are unlikely to agree to serve the fund.
• A legal consultant is necessary to ensure the licensed status of the fund, which is issued by authorized regulators, subject to certain specific requirements. The license opens much wider scope for opportunities and a set of investors' base, but, in addition, the consultant is often used in the conclusion of various treaties and agreements.

This is how the structure of the hedge fund looks. Again, in various cases, this scheme in practice can be even simpler (even with the absence of any of the above frames) or much more twisty and complex.

"Typical fund": varieties and classifications based on the investment strategy being conducted

In addition, despite the structural component, the International Monetary Fund identifies three types of hedge funds:

1. Global funds - their activities are spread throughout the world market. However, this type of funds usually develops its strategy on the basis of analysis and forecasts of the dynamics of shares of individual companies.
2. Macro-funds - work exclusively within the framework of a specific national market. Usually they are based on macroeconomic and financial peculiarities of a specific country.
3. Funds of relative value - the primeval classical type of hedge funds, as they were at the very beginning of their existence. Perform financial transactions in the stock market of any one country, using the old good strategy of selling revalued and buying unvalued shares. At the same time, the manager constantly monitors the current situation on the market in order to choose the most suitable moment for the transaction and get the maximum profit.

Of course, on the official classification, the entire variety of hedge funds in the world market does not end, because there is little that prevents managers to create many additional subspecies and branches, if required.

More on the working moments of hedge funds

The partnership policy of the absolute majority of hedge funds is aimed at long-term membership of investors, due to which their deposits remain at the disposal of the fund for a long time. This mainly concerns exit rules: the depositor must warn the organization about such a decision in advance, while the gap between notification and termination of membership can reach up to 2-3 months (depending on the established rules). Another alternative often encountered in practice is the immediate withdrawal of the entire deposit in cash, but the price for the purchase / sale of assets is determined directly by the fund itself. And, of course, in most such cases, the difference between them is very significant.

So, with the entry, exit or with a partial reduction of its contribution, the total volume of investments of each partner is reviewed and, accordingly, the ratio is also changing. Termination of membership of a certain number of investors can significantly increase the total amount of profit among the remaining: management can settle with outgoing investors by far not the most successful investments, leaving in its portfolio more promising assets. Thus, after a while, the hedge fund can get a sharp increase in return on capital due to the contribution that previously participated in the creation of revenues and was subsequently withdrawn for outgoing investors, but not yet in time to receive the interest due. However, if the hedge fund has a persistent tendency to actively withdraw depositors, then no one is immune to the completely opposite effect in the form of mass exit from the partners. Often this is fraught not only with the fall in returns on capital, but also with the total bankruptcy of the entire organization.

More ambiguous than a broad area of investment in working with finance is an expanded system of commissions. Hedge funds receive not only a single operating cost factor, but 2% for managing the assets themselves and 20% of any profit received. At the same time, even if the manager suffers losses and does not bring any income at all, according to the memorandum of association, in any case, these 2% of the total volume of controlled assets are deemed to have been appropriately called "2 and 20". Such a system of commission charges is practiced by the overwhelming majority of hedge funds of the planet. However, many analysts today especially emphasize the trend of gradual transfer of funds to the system "1 and 10". In the event that the manager does not charge any accruals simply from the disposal of assets, this is covered by a higher percentage of commissions from the profits.

In pursuit of large profits: modern strategies for working with investments

Extremely diverse opportunities and areas of investment, as well as the influence of many different factors, constantly contribute to the generation and implementation of new technologies for earning for hedge funds. However, despite this, modern main strategies of working in the financial field can be classified into several general types:

• Long / short position - usually hedge funds in this strategy work with 40% of their assets. It consists in the acquisition of undervalued assets (long) and the sale of revalued (short).
• Market-Neutral Arbitrage (Market-Neutral Arbitrage) - works only when the same assets differ in value on different exchanges. The manager enters a long position on the revalued assets on one exchange and short on another - where these same assets are overvalued.
• Event Response - a strategy is based on the unfair value of the shares of any enterprise that has undergone certain changes (be it merger, acquisition, reorganization, etc.). The manager catches a profitable moment for the operation (purchase / sale) until these unfair prices are leveled by the market.
• Short positions (Short Bias) - with this strategy, the fund basically keeps short positions, earning on falling markets.
• Real value (value) - investment is carried out in securities that are sold at a discount to the underlying assets or undervalued by the market.
• Crisis securities (Distressed Securities) - purchase with a large discount of shares and liabilities of companies that are on the verge of bankruptcy or restructuring. Investing in this strategy assumes that as a result of internal changes, the selected companies will become more powerful, while making profit with it.

Often, foundations resort to mixed strategies, using several of the above methods to profit.

Normative regulation: what rules of the game and levers of influence exist for hedge funds?

Quite long hedge funds stood apart in the world market because of their closedness and weak regulation of financial transactions. However, of course, there could never have been any talk of complete anarchy and freedom of action: normative regulation of funds was, is, and will always be. Today, given their rapidly growing influence on the world market and the increasingly frequent manifestations of various violations and insider trading, special commissions and bodies monitor and monitor them even more carefully than ever before.

In particular, the JOBS Act (Jumpstart Our Business Startups Act) introduced in March 2012 changed the hedge funds quite a bit after a while. Developed as a measure to encourage financing by various small business institutions, this act weakened the control of the securities market. Thanks to the new law, hedge funds, given their wide investment opportunities, have become almost the main providers of capital for start-ups and small businesses. Subsequently, this act had a major impact in September 2013 on the lifting of the ban on advertising of hedge funds and firms offering individual placement of securities.

In many countries, hedge funds are required to report to public financial authorities at the first request for large positions on foreign exchange contracts, as well as to inform their positions on newly issued or forthcoming securities. Such measures are introduced specifically for the purpose of limiting money laundering and strengthening the control over the movement of capital so that large players do not infringe the interests of small players in the market.

In addition, the policy of state control of hedge funds is aimed at reducing the systematic risks of destabilization of the financial system as a whole. This is reflected in the regulation of the margin requirements, collateral requirements and limits that financial intermediaries open to individual customers.

In order to prevent risks from crediting hedge funds, the largest primary brokers and banks daily reassess their positions relative to positions at market prices of the funds to be loaned. These loans must necessarily be provided with an appropriate pledge in the form of valuable assets. In addition, banks have the right to set lending limits for each fund separately, based on their own monitoring of the investment strategy, monthly incomes, cases of investors' departure and the history of business relationships.

The most successful hedge funds of the world these days

Meanwhile, not the best times for hedge funds continue to drag on since last year. The overall profit margin was below the average recorded value for the last few years: last year, the largest hedge funds earned $ 517.6 million, which? According to some experts? Better than the results of 2014, but by as much as 40% worse compared to the profit received in 2013.

At the same time, the price of all assets, somehow involved in hedge fund activities, increased by about $ 51.7 billion, reaching a total appraised value of $ 2.97 trillion.

The negative trend towards the profit decline is vividly reflected not only in the tangible financial losses suffered by even the best hedge funds of the world, but also on the obvious changes in the ratings of the strongest market participants. Their positions have been lost by such well-known figures as John Paulson of Paulson and Co., Leon Kuperman of Omega Advisors, and Daniel Leb from Third Point. In their former places, players such as Ken Griffin of Citadel and James Simons of Renaissance Technologies have become firmly entrenched. Both in 2015 managed to earn a record $ 1.7 billion, thus quite deservedly taking the pedestal of the strongest hedge fund managers.

The rating of hedge funds can change beyond recognition, ruthlessly throwing to the bottom of seemingly time-tested and market-leading leaders. Will the current top players remain with their positions without suffering significant losses by the end of the year? Only time will show. In the meantime, leadership among all hedge funds of the planet is held by this dozen managers:

Manager	Fund	Profit
Kenneth Griffin	Citadel	$ 1.7 billion
James Harris Simons	Renaissance	$ 1.7 billion
Ray Dalio	Bridgewater	$ 1.4 billion
David Tepper	Appaloosa	$ 1.4 billion
Yisrael Inglander	Millenium Mgmt	$ 1.15 billion
David Shaw	DE Shaw	$ 750 million
John Overdeck	Two Sigma	$ 500 million
David Siegel	Two Sigma	$ 500 million
Andreas Halvorsen	Viking Global	$ 370 million
Joseph Edelman	Perceptive Advisors	$ 300M

Hedge funds of Russia: ratings, prospects and planned trends

Not the most profitable times for hedge funds also affected the Russian colleagues of American traders. Demonstrating a negative return, the situation with domestic funds in general looks less colorful than in the western market, where such institutions are considered one of the most reliable financial instruments, stably bringing up to 20% of the return on investment with minimal risks in most cases.

In Russia, investment funds are mainly represented by mutual funds (Mutual Investment Fund) and OFBU (General Funds for Bank Management). Especially hedge funds in Moscow quite often have the status of trust management. The total number of qualitative hedge funds is now about six dozen. A similar figure was recorded in the mid-eighties in the US, where the market at that time was already truly appreciating hedge funds. In Russia, however, the legislative base significantly limits the tools of the funds, not allowing the use of a large number of strategies for working in the market. For the same reason, a large part of Russian investment partnerships are registered in offshore zones.

Therefore, the adoption of a number of changes in the legislation on this issue can significantly stimulate Russian hedge funds and their economic growth, allowing them to adopt a much wider range of strategies.

And although the hedge funds in Russia are not as widespread as in the West, there are impressive examples of leaders able to compete with competitors at the international level. The most effective of them was VR Global Offshore Fund, whose profit for the year was 32.32%. But such a record for the domestic market yield VR Global Offshore Fund managed to achieve blocking of funds: the fund has the highest percentage of the penalty for investors for early exit - 4,5%. Diamond Age Atlas Fund earned less - 22.92% of the total profit, leaving the Copperstone Alpha Fund on the third line of the rating. The bronze medalist managed to grow by 22.06% for the year.

Finally, in the fourth place, Burnem Asset Management, whose income for the last year was 17.63%, is located.

In the hands of all the four above mentioned funds, approximately 80% (3,425 billion dollars) of all assets are concentrated in comparison with the rest of the competitors on the Russian market. At the same time, more than half of these funds - 1.634 billion - belong to the VR Global Offshore Fund.

Personal experience with hedge funds in the feedback of market players themselves

Today, hedge funds are one of the most profitable and at the same time maximally stable investment partnerships among many other alternatives to investment in the modern market. Large professional entrepreneurs and businessmen in the search of profit, as a rule, always mark as the most priority financial institution to which they entrust their hard earned money, namely the hedge fund. Reviews are negative, positive reviews - hardly now at least someone will trust the opinion of strangers-"depositors" on the Web, when fake accounts have become almost one of the main tools of commerce.

Another thing is that the risks have always been there and will continue to be, especially in the economy. Thus, not every hedge fund can actually be an investment partnership, but rather creates a fake around its name for one single illegal purpose - fraud.

One of the most notorious cases was Bernard Meidoff 's scam , which cost $ 50 billion to depositors of Madoff Investment Securities. His investment fund, the entrance fee of which was several million US dollars, was known to many people from high society. Maedoff himself was also known for his generous donations to scientific research on cancer and diabetes, on the electoral expenses of the US Democratic Party, and on the development of cultural and educational institutions.

However, this did not save the fund from the imminent restructuring from the investment partnership to the financial pyramid after the 1995 crisis. However, the bubble that he created burst at the end of 2008, after which Madoff was sentenced to imprisonment for 150 years.

Really experienced players (people who have not earned the first million by investing funds) first of all recommend to take a closer look at the minimum amount for entry. If it is equal to or even less than $ 50,000, then be sure for sure - you are faced with a HYP, disguised as a hedge fund. For example, foreign-based hedge funds that have been proven by time and dozens of clients take investments from at least $ 100,000.