(Chapter 24)Hedge funds, in the end investors or speculators?

(Chapter 24)Hedge funds, in the end investors or speculators?

Dear readers, when you read this issue, we might think about the following two questions:
(1) 對沖基金公司的運作,是金融市場:屢次發生動蕩不安局面的幕後黑手嗎?

(a) The mode of operation of the hedge fund company is behind the manipulation of financial markets: The repeated occurrence of the turbulent situation

(2) 對沖基金公司,為甚麼不會受到各個國家的金融當局的監管?

(b) Hedge funds, why not subject to the supervision of the financial authorities in each country?

A. Hedge funds, the following three investment projects: financial futures, financial options, financial derivatives, the combination of financial institutions, and then use the high-risk Speculative means to seek profit for the purpose of financial organizations.


B. The basic meaning of hedge funds:


Financial futures and financial options, known as financial derivatives, these so-called investment vehicles, usually investors or speculators using in the financial markets as hedging, risk aversion means.

With the progress of time, in the financial markets, part of the fund organization, the use of financial derivatives,

Currently, these so-called hedge funds, has lost the connotation of the hedged risk;
On the contrary, now generally accepted that: hedge funds, is actually based on the latest investment theory, to join the fund manager, the measure of political or economic trends,
Fund managers doped with extremely complex financial market operations, to take full advantage of a variety of financial derivatives, the financial leverage for high-risk, and the pursuit of a high-yield investment patterns.
C. Origin and development trend of hedge funds:


This investment operations, originated in the early 1950s, the United States. The purpose of the operation is to use futures, options and other financial derivatives between the loopholes in the operating profit. Fund managers in the investment market, screening, related to each other, but different classes of stock, bought the empty, short selling, and investment operations.
to buy long:Investors, when the expected stock price will rise, advance to the stock exchange institutions, pay credit margin, the right to buy shares, then, within a certain period agreed by the parties to the transaction, the lending stock in stock market, waiting for the stock price rose to a satisfactory price, sell the stock, the transaction process, access to buy and then sell the difference, an investment to make a profit target.
to sell short:Investors, when the expected stock price will fall to the stock exchange agencies in advance, use the deposit in the form of mortgage payments, first borrowed shares within a certain period agreed by the parties to the transaction, watching the market movements of stock prices, stock prices really dropped the timing of the emergence of waiting for the stock price fell to a relatively lower purchase price, then buy another the same number of stocks, buy stocks, returned to stock lending, and derive the difference of income.


In other words, is to allow the investor does not have sufficient funds, or did not have stock, investors only in accordance with the provisions of the Stock Exchange, deposited into a specified number of credit bond or stock exchange regulations, deposit into a specified number of security deposits; this is a way for investors, widespread adoption of the investment.


Although this is a speculative way, but this is a help to improve the trading volume of the stock market, it would also make investors can earn money; however, investors will face a lot of potential risks.


Operating skills, buying and selling stocks allows the investor’s profit and loss risk, mutual hedge. This financial operations skills, to a certain extent, indeed can be circumvented and to resolve a single speculator, facing the risk of the investment of money.

D. Financial markets, hedge funds, the most commonly used investment strategy, as many as over 20 species.
The way of its operation, can be divided into the following five categories:
1 by simultaneously buying and short selling the stock, which can be unilateral long-term holders of stock positions or long-term sell stock;
2 While continuing to buy the shares of the stock trend is down and sell the stock increased by the share price trend;

3 convertible arbitrage, i.e. the low purchase price of the convertible bonds, the underlying shares to short sell the stock at the same time, and vice versa;

4From the perspective of the global economy, the analysis of local economic and financial system, in accordance with the reality of the political, economic events, set a major trend trading strategies;

5 managed futures bought and sold, that is: holding various categories of derivative products.

Investors around the discussion of “hedge fund" the two core issues are:
1 對沖基金究竟是屬於甚麼類別的公司?
1 Hedge funds actually are what types of companies?
2 對沖基金公司的運作,會不會導致高風險的投資?
2 The operation of hedge funds, will result in high-risk investment?
E. Governments, or to the hedge fund companies to strengthen supervision, and what means should be taken to strengthen supervision?
I discussed can be divided into three parts:

The first is: to introduce an overview of the operation of the hedge fund company opened a hedge fund company veil of mystery;
The second is: Try to analyze hedge fund Company, necessarily lead to financial risks; hedge Fund Company, whether it led to the 1997 Asian financial crisis?

The third is: discussed, the national government financial regulatory bodies, should to the hedge fund the company’s operations, strengthen the supervision efforts.
F. Overview of a hedge fund company
1, the definition and characteristics of hedge funds:
Mid-1990s, although some of the terminology of hedge funds, already into the financial markets, hedge funds, but is really unheard of. Those times when such financial terms.
Such as: “hedge" , " fund " ," uncovered arbitrage “, " mutual funds “and other terms, but no the term of the hedge fund company.
2,In fact, to say clearly hedge funds what is the nature of the company is not an easy thing.
“Hedge funds" have many unique names, for example: “hedge funds", “uncovered arbitrage funds" and “risk-averse fund. "

In fact, since the 1990s, the world’s financial markets, understanding of the “hedge fund" is quite confusing and there is no consistent conclusion.
G. I try to enumerate some of the most authoritative financial institution or an individual person, made for “hedge fund" is defined as follows:

First: the IMF is defined as: “Hedge funds are private investment portfolio, often offshore are set up to evade the full, to the establishment of the company’s home country, should pay the tax, as well as the country financial institutions, regulatory restrictions. "

The second: the first U.S. hedge funds, commercial information agencies (Mar / Hedge,) is defined as: “The fund company is a take incentive commission system companies, fund companies typically taking 15-25% of the total amount of investment money, as administrative costs; and the minimum to meet one of the following criteria:

1: The Fund invests in a variety of different classes of assets;
2: the investment project, be sure to use the leverage effect;
3: The Foundation investment portfolio, using a variety of arbitrage strategies. "

Third: HFR of the United States, another hedge fund research institutions, and hedge funds summarized as:

The hedge fund company is a taking of private investment partnership, set up in the form of offshore funds, according to the company’s performance, extraction of the commission. The fund company will use different investment strategies to make a profit as the goal.

Fourth: the definition of the famous American pioneer in hedge funds, international consultancy firms VHFA:
Take private partnership to form a corporation or limited liability companies, fund companies to invest in: the financial markets, public offering of securities or financial derivatives.

Fifth: Federal Reserve Chairman Alan Greenspan told the U.S. Congress to testify on the Long Term Capital Management (LTCM), when given an indirect definition of “hedge funds":


Greenspan said: LTCM was a hedge fund company, or to say, it is a: by the customer is limited to a small number of very mature customer members of the investment experience, and that investors are wealthy individual organization; carefully arranged to avoid open the control of the country’s financial regulatory agencies; fund companies in the financial markets, the pursuit of high-risk investments and transactions of a large number of financial products, with a high rate of return on mutual funds.
According to the above definition, especially the indirect definition of Greenspan, we believe that hedge funds are not “extra-terrestrial", the so-called hedge fund company, the real is nothing more than a mutual fund, except that the composition of the Fund’s investment arrangements all the more special. Investors: including private investors and institutional investors than less, by the author cited the analogy of an image, it’s like: “rich people’s investment club", to each other compared to ordinary mutual fund is the “public investment person’s investment club".


Due to the particular combination of hedge funds, special arrangements, making the hedge fund company can avoid the financial regulators about the legal system, the company is not a part of the regulatory, more can, and unfettered use of all financial investment tools, access to high money return on investment, and evolved into a lot of difference between hedge funds and ordinary mutual funds.

Some financial experts believe that: hedge funds are often the key to a loss: the company with a leveraged investment, and invest in financial derivative products with a high degree of risk.
But, in fact, as the IMF pointed out that, in fact, some investors or speculators, who have participated in exactly the same with hedge funds, investment operations, such as: self-employed business departments of commercial banks and investment banks, banks for a long time have the stock of the various categories of financial markets, trading of derivative products, banks have also taken the same way as with hedge funds, to deal with the bank’s asset portfolio.

Many mutual funds, pension funds, insurance companies and university endowment funds, are involved in the same with hedge funds, investment operations, and is ranked within the most important hedge fund investors roster.

In addition, investors can also be from a micro-banking system, can be observed between total assets and liabilities of commercial banks, turned out to be several times of the natural capital of the bank, in this sense to analyze the operation of commercial banks, also without exception the use of leverage to operate.

(1)The U.S. government to participate in the hedge fund investors, there are strict eligibility restrictions:
According to the provisions of U.S. securities laws:
1 if the investor with a personal capacity, investors, within the last two years, personal income, at least in more than $ 200,000;
2 If the name of the household to participate, the couple then the income in the last two years, at least in more than $ 300,000;
3 If the name of the institutional investors to participate in the net asset value of the institution, at least in the more than $ 1,000,000.

In 1996, the U.S. government to make new rules: hedge funds, participants will expand by 100 to 500 people.
The participants are: individual investors, investment securities must have a value of $ 5,000,000 or more assets. Mutual funds in general, there is no such restriction.


(2)Hedge fund operation of the company operations:
The operation of hedge funds, will not be subject to government regulatory restrictions, portfolio transactions, nor to be that restrictive, the Fund’s main partners and managers are free to flexibility in the use of a variety of investment techniques, including the purchase of empty, short . Buy and sell derivatives products or leveraged transactions. Mutual funds in general, in the operation of the operating restrictions imposed, are more diverse.

(3)Supervision of hedge funds:
Hedge fund companies are not subject to government regulation. United States Securities Act of 1933, the Securities and Exchange Act of 1934 and the Investment Company Act of 1940 provides that: less than 100 investors, investment institutions, the establishment of: No registered to the U.S. Securities and Exchange Commission and other financial authorities, and avoid subject to control.


The hedge fund, not subject to government regulation because: investors, mainly very small number of participants, and investors of investment experience, and investors are wealthy individuals, self-protection ability.
In contrast, government regulation of mutual funds more stringent, this is mainly because the investor is a public person, many investors, a lack of understanding of the investment market; out to avoid public risk, protect the weak, and to ensure social safety considerations, the government is so strict supervision.

(4)Way of raising funds of hedge funds:
The United States Private Securities Act: hedge fund company in the recruitment of customer, shall not use any mass media advertising; investors participate in the hedging companies, mainly through the following four ways:
1 依據在上流社會獲得的所謂「投資可靠消息」;
2 直接認識某個特定對沖基金的管理者;
3 通過個別的其他基金推介;
4 由投資銀行、證券仲介公司或投資諮詢公司的特別介紹。
1 According to reliable sources of the so-called investment in polite society;
2 Direct knowledge of a particular hedge fund managers;
3 Recommend other funds of the individual;
4 By investment banks, securities broker or investment advisory firm special presentation.

1 「對沖」是一種甚麼性質的概念?
2 對沖基金經理為什麼要為「投資」進行「對沖」的操作?
1 “Hedging" is actually what the nature of the concept?
2 Why hedge fund managers want to “invest" in the operation of “hedging"?

Please let the author attempts to explain the concept of “hedging" the easiest to speak:
Investors purchased the contracts of a certain type of “commodity" trading in the futures market, the type of goods, the number of spot market “commodity" type, the same number; investors to buy back the futures commodity exchange contracts used to offset the “cash" commodity market transactions, there is price risk.

The earliest hedge concept is a real hedge against inflation, mostly used in the agricultural market and the foreign exchange market.

(6)Why have “hedgers" exist?
Hedgers are the actual producers and consumers, or possession of the goods will be sold, or future purchases of commodities, or the person has a claim to receive dividend in future, or debt, and will have to repay the debt, and so on.
Please let the author try following are examples:

A French exporter, plans will be exported after three months the number of cars to the United States, exporters are expected to receive $ 1,000,000 of the purchase price, however, exporters do not know, three months later, the U.S. dollar exchange rate against the euro, after three months, rose or fell? If the falling dollar, the exporters will suffer losses. Order to avoid risks, exporters can take the initiative is in the futures market, short selling the same amount of dollars (after three months of settlement payments), exporters after the “lock in exchange rates," the initiative, so as to avoid, due to exchange rate the uncertainty of the risks.
The so-called “hedge" means: investors, both “short selling, they can buy empty.

If you have a specific type of “assets", and is prepared in the future this kind of “assets" to sell, you can use the “short selling" initiatives, and used for a specific asset, to lock in prices.
Investors going to buy a certain kind of “assets", but investors worried about this “asset" prices will rise, investors can take advantage of “buy empty" initiative, to buy this kind of specific “assets" futures.

The center point of the issues discussed here, the purchase of “futures" price, selling price and the future maturity, the difference between each other; so both parties are not really “settlement" this “asset"; Therefore, when the price of the “settlement" of the essence, only the futures price and the futures maturity, the difference between each other prices.
This significance level, investors in the buying and selling behavior of certain “assets", which is “buy empty" and “short selling" the concept.

(7)So, what is the behavior of hedge funds “hedge"?

The hedge fund originator Jones had this to say:

Jones said: “hedging" behavior, the operation of a financial market is a neutral strategy; undervalued securities, to do the “long" operation or “short" action can be effective, will invest stock of capital, magnification, and able to use the limited funds, a lot of “buy" or “sell" operation.

Financial markets, initially two kinds of investment tools are widely used:
The operation of “short selling" and “leverage effect" operation.
Jones put the above two kinds of investment tools, combined together; the creation of a new investment system.
Jones in turn purchased the stock, the possible risks, subdivided into two categories:

1 From the risk of individual stock options;
2 From the entire financial market risk assessment.
Jones trying to separate these two risk.
Jones will be part of the assets used to protect the “empty buy" the stock; an operation, and by virtue of this as a" write off “the purchase of the stock, once the stock prices, have to bear risk.
Jones also try to stock market risk, the control that can bear the risk within the same time, the leverage effect, used to amplify the correct choice of the individual stocks, the profits.

Jones to take the strategy is: buy a particular stock for a “long" operation, then short selling some stocks.
In other words: Jones bought the stock price is undervalued, and “short selling" stock was overvalued.

Jones think: the implementation of this operation, operating investments can expect, regardless of market prices rise or fall, can make a profit.

Therefore, Jones, the Fund’s investment portfolio will be divided into two parts of opposite nature:

In theory: part of the stock whenever the stock market, stock prices rise, the fund can make a profit;
In theory: another part of the stock whenever the stock market, stock prices fell, the fund companies can profit.
This is the hedge fund company’s so-called “hedge" trading operations.

Although Jones feel: the correct choice of stock, relatively more important sights on market trends, Jones, based on personal, financial markets observed market forecast, as the increase or decrease the stock portfolio.

When the stock market, stock prices of long-term trend is up, the hedge fund’s investment in general are able to make a profit.

(8)Hedge fund Company, joined the operation of financial derivatives, for example joined the operation of the “options", the situation becomes how well?
I wish to cite an example.


I try to give an example to illustrate: A company’s stock price is $ 150, if the fund manager estimated a month later, the stock price to rise in value to $ 170.
The traditional approach is: investors will pay $ 150, the purchase of the stock of Company A, when A company’s stock price to reach $ 170 investors to sell the stock for a profit of $ 20, then the profit and cost ratio of 13.3% .

However, if investors use the “Options" operation, investors can use the $ 5 per share, margin, and the purchase of Company A, the market price of $ 150 call options, a month later, the company’s A shares rose to $ 170investors for each share of stock, they can earn $ 20, investors minus the margin paid $ 5 for a net profit of $ 15 (for simplicity, not counting fees).


In other words, investors with a cost of $ 5 per share will be able to secure a profit of $ 15; profit and cost ratio of 300%.If the investor uses $ 150 to options investment, the amount he earned, not $ 20, but the amazing $ 4500.
It can be seen, the proper use of derivatives, just at a lower cost, you can make more profit, like the physics of leverage, the role away from the fulcrum point, a smaller efforts to be able to lift heavy objects very close to the fulcrum.

Financial experts will be referred to as leverage. In this case, if not for hedging, but purely for the direction of the market, and use leverage to bet, once done, of course, the profiteer, but the risk significantly, if missed, the loss was the leverage effect amplification.

For example, Long Term Capital Management Fund (LTCM), the company’s $ 2.2 billion of its own funds as collateral to loans from financial institutions $ 125 billion.

Fund companies, the company’s total assets of more than 1200 billion dollars, to purchase different types of financial products, involving a variety of market value of the securities, over one trillion U.S. dollars, leverage up to 56.8, as long as: one-thousandth the risk was immediately subjected to extinction.

(9)I think: the initial target price of U.S. dollar against the Japanese currency will be: 86

U.S. Fed avoided the third round of quantitative easing (QE3), and also have a better assessment of the economic outlook, the Fed also pointed out that inflation in the short term, there is pressure on the financial market speculation, the Fed on the implementation of quantitative easing measures, would be: “stop, recite and recite".

Fed temporarily stop printing money to buy U.S. bonds, U.S. bonds bearish for the dollar currency, U.S. bonds long-term and short-term interest, are soaring upward;
美國10年期債券孳息,已經上升到2.28厘,突破了過去數個月,由1.8厘至 2.1厘的橫行區域,反映美元強勢趨向、弱勢趨向的美滙指數,亦已經升越 80關口。
U.S.10-year bond yield has risen to 2.28%, breaking through the past few months, from 1.8% to 2.1% rampant region, reflecting the trend of a stronger U.S. dollar, the weak trend of the U.S. exchange rate has already risen more 80 point mark the location.

Fed is committed to maintaining lower interest rates to the end of 2014, for the re-introduction (QE3) the date is not mentioned.

By the movements of the Fed, the author observed: as the U.S. economy gradually slowly turned the corner; the Fed has not inclined to re-implementation of any form (QE3), the purpose is to avoid pushing up inflation.

Plus within the next two years, the Federal Reserve in 2014, to maintain low-interest argument, also said the financial markets, there is skepticism, combined with some information, in fact, will be implied: the future of U.S. monetary policy,will be extremely easy situation to tighten the money supply situation.

The contrary view, Japan’s central bank, although failed to continue to implement additional new (QE) measures, but on the launch of low-interest loans of 2 trillion Japanese currency, used to support the borrowing of the domestic high-growth industry.


After the Japanese government to the Bank of Japan to provide low-interest loans of 2 trillion Japanese currency, is able to support high growth industry success is not the point; I always feel that banks loan interest is very low, and ultimately there will be a lot of money will flow into the financial markets, foreign exchange operations.

The current financial market situation: the U.S. government began to tighten the supply of funds; the Japanese government still take measures to relax capital, financial markets would have predicted: that the interest gap in the United States and Japan, will no doubt gradually widen; make interest arbitrage transactions in the financial markets, short selling of the currency from U.S. dollars into Japanese currency, which is the biggest reason I remain negative Japanese currency.

Japan experienced a century earthquake and tsunami, but the Japanese currency, the central banks in seven countries to join hands after the intervention, even again removed rise, U.S. dollar against the Japanese currency, the end of October 2011, more rewrite the exchange rate of the “historical record high"; At that time, had forced the Japanese central bank access to financial markets and make the action of the intervention.


At that time, many of the financial person for the Japanese currency’s strength, felt stunned; the date of the financial markets, the only explanation is: the two pillars of the Japanese economy remained the balance of trade surplus and current account balance of payments has surplus, because the Japanese government, the emergence of a dual surplus, the Government of Japan already has a huge foreign exchange reserves, these surplus reserves, piled up to support the power of currencies in Japan.



Today, the Japanese government by the two-account surplus, into pairs project a deficit, the economic realities, but also recorded a negative growth, Japan’s interest rate, is ranked the lowest level among all developed countries; Japan’s central bank in 2012negotiate the interest positioned in February to increase the size of the purchase of bonds to 10 trillion Japanese currency and the setting of inflation targets.

The Japanese government to take these two initiatives: The more the Japanese currency, continue to extend the disadvantaged.

At present, the world’s major central banks, expanding the scale of quantitative easing, the Japanese government is in place, is the highest level; debt crisis in Greece temporarily eased, but also weaken the Japanese currency as a hedge currency;

再加上美國的利息飆升,美國國債兩年期的孳息,接近 0.4厘;日本政府國債,兩年期孳息是0.1厘,由於兩個國家的孳息差距拉闊了,日本貨幣,已經再度取代美元,成為套息交易的主要融資貨幣。

Coupled with the soaring U.S. interest, the yield of U.S. Treasury bonds for the biennium, nearly 0.4%; Japanese government bonds, the biennial yield is 0.1% widening the gap due to the interest of both countries, the Japanese currency has re-replace the dollar as the main funding currency for carry trade.

Japanese Government in January 2012, there have been, up to 4,373 billion Japanese currency liquidity account deficit; Japan’s domestic economy has reached the point of bad; the Japanese government, dependent on the economic pillar of the export sector, have begun an emergency; the country’s economic prospects deterioration will only make the Japanese currency continued to be a weak currency.

Japan’s central bank, already in February 2012, launched 10 trillion (QE) of the Japanese currency, the Japanese government, continue to expand (QE), the voice, not weakened. The Japanese government determined to push down the yen’s position very clear.

Based on the above facts, the author: I maintain, continue to dim the prospects of the Japanese currency, the initial target price of U.S. dollar against the Japanese currency is: 86, support the position: 81.

筆者在本站網誌發表的所有內容,純屬個人意見分享,並未對任何人士構成投資建議 。

My blog published on this site all content is purely personal opinion to share, did not constitute investment advice for any person.




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