Beginner
What a hedge fund is and what it is not
A hedge fund pools investor capital under a private investment mandate. The useful starting point is what it owns, how it trades and when investors can...
Read articleFOLITIC / Hedge Funds
Hedge Funds Investment Guide
Understand hedge fund structures, investigate strategies and fees, and build a disciplined manager research process. Follow eight stages from investor access and portfolio mechanics to due diligence and ongoing review.
Start with What a hedge fund is and what it is not, then follow the next lesson links. Explore 32 lessons with worked examples, exercises and further reading.
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Hedge Fund Foundations
Understand the vehicle, investor access and the people who operate a fund.
Beginner
Who can invest and why eligibility is not suitability
Permission to buy a private fund and a sensible reason to own it are different questions. Investor access depends on the offering, jurisdiction and individual circumstances.
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Beginner
Hedge funds, mutual funds and private equity
Hedge funds, mutual funds and private equity funds can all pool money, but their portfolios, investor rights and routes to cash can differ substantially.
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Beginner
The manager, administrator, custodian and prime broker
A fund relies on several organizations. Understanding their separate responsibilities helps an investor see where decisions, assets, records and independent checks sit.
Read articleFund Terms and Liquidity
Read the agreement and connect fees and exit terms to your investment experience.
Beginner
Reading the offering memorandum and fund agreement
The offering memorandum describes the opportunity, while the governing agreements define important rights and obligations. Read them together before relying on a presentation.
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Beginner
Management fees, incentive fees and the investor return
The investor receives what remains after the applicable expenses and fees. A fee label is incomplete without its calculation base, sequence and timing.
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Beginner
High water marks, hurdle rates and crystallization
High water marks, hurdles and crystallization dates determine when performance compensation becomes payable. Similar sounding terms can produce different results.
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Beginner
Lockups, notice periods, gates and side pockets
Redemption rights are a sequence of conditions. A request date, dealing date, payment date and possible restriction can all differ.
Read articleEquity and Event Strategies
Explore long and short portfolios, corporate events and their sources of risk.
Intermediate
Long and short equity portfolios
A long and short equity strategy combines ownership of selected shares with positions designed to benefit when other shares decline. The two books need separate analysis.
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Intermediate
Market neutrality and hidden factor exposure
Equal dollar amounts on the long and short sides do not guarantee equal risk. Market neutrality is a target that must be defined and tested.
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Intermediate
Merger arbitrage and the risk of a broken deal
Merger arbitrage studies the difference between a target’s market price and the consideration expected if an announced transaction completes. The spread compensates for uncertainty.
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Intermediate
Activist investing and corporate catalysts
An activist strategy buys an ownership position and seeks changes that could affect company value. The outcome depends on both the investment case and the ability...
Read articleMacro Credit and Relative Value
Study global markets, systematic trading and relationships between securities.
Intermediate
Global macro and discretionary portfolio views
Global macro strategies express views on economic relationships through currencies, interest rates, bonds, equities or commodities. A correct narrative still needs a sound implementation.
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Intermediate
Managed futures and systematic trend following
Systematic trend following uses defined signals to adjust market exposure. It does not need to predict the next economic announcement, but it remains exposed to market...
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Intermediate
Relative value trades and convertible arbitrage
Relative value strategies trade the relationship between instruments. A small pricing difference can become a large portfolio risk when leverage, financing and imperfect hedges are involved.
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Intermediate
Credit strategies, distressed debt and capital structure
Credit strategies examine repayment, priority and recovery. A low bond price can indicate opportunity, but it can also reflect a claim that will receive little or...
Read articleRisk and Portfolio Mechanics
Measure exposure, financing, liquidity and losses across different scenarios.
Intermediate
Gross exposure, net exposure and leverage
Gross and net exposure answer different questions. Both are useful, and neither is a complete measure of potential loss.
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Intermediate
Financing, margin calls and counterparty risk
Financing terms can change before an investment thesis resolves. A fund must survive collateral demands and counterparty disruption as well as price movements.
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Intermediate
Liquidity mismatch and crowded exits
Liquidity risk appears when cash obligations arrive faster than assets can be sold at reasonable prices. Crowded trades can make that imbalance worse.
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Intermediate
Stress tests, drawdowns and tail risk
A stress test asks how a portfolio might behave under adverse assumptions. A drawdown records an actual decline from a prior peak. Neither predicts the worst...
Read articlePerformance and Evidence
Separate skill from market exposure and interrogate the return record.
Advanced
Gross returns, net returns and compounding
A performance percentage is useful only when its calculation is understood. Gross, net, compounded and cash flow dependent returns answer different questions.
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Advanced
Alpha, beta and alternative risk premia
A positive return can come from market exposure, systematic risk taking or manager decisions. Alpha is an estimate relative to a model, not a label for...
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Advanced
Sharpe ratios, downside risk and correlation
Risk adjusted statistics compress a return history into a few numbers. They help comparison only when their inputs, limitations and economic meaning are understood.
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Advanced
Backtests, survivorship bias and track record checks
A track record is evidence to investigate. Backtests, selected histories and incomplete databases can create a much stronger impression than an implementable strategy deserves.
Read articleManager Due Diligence
Evaluate investment discipline, operations, valuation and governance.
Advanced
Testing a manager’s investment edge
An investment edge is an explanation of why a process could earn returns after costs. It needs evidence, boundaries and a reason it might persist.
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Advanced
Operational due diligence and independent checks
Operational due diligence examines how assets, records, people and systems are controlled. A compelling investment strategy does not compensate for an unreliable operating process.
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Advanced
Valuation, audits and hard to price assets
Valuation converts positions into reported NAV. For assets without reliable market quotes, the assumptions and challenge process can materially affect performance and fees.
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Advanced
Governance, conflicts and service provider oversight
Governance determines who can challenge a decision, approve a conflict and act when the manager’s interests differ from investors’ interests.
Read articleAllocation and Ongoing Review
Build a decision process for portfolio fit, implementation and monitoring.
Advanced
Sizing a hedge fund allocation in a wider portfolio
A hedge fund allocation should have a defined job within the whole portfolio. Position size depends on loss capacity, liquidity and existing exposures, not the appeal...
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Advanced
Funds of funds, managed accounts and alternative wrappers
Investors can encounter hedge fund strategies through several structures. The wrapper changes fees, control, transparency and liquidity even when the underlying idea sounds similar.
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Advanced
Monitoring, rebalancing and redemption decisions
Monitoring asks whether the investment still matches the original case. It should combine performance, exposures, operations and liquidity rather than react to every good or bad...
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Advanced
A complete hedge fund research case
A complete research case brings strategy, economics, controls and portfolio fit into one decision. The goal is a documented judgment with visible uncertainties, not a perfect...
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