A hedge fund is a lightly regulated investment partnership that
uses a range of investment techniques and invests in a wide array of assets
to generate a higher return for a given level of risk than what’s expected of
normal investments. In many cases, but hardly all, hedge funds are managed
to generate a consistent level of return, regardless of what the market does.
Sunday 19 December 2010
Directional funds
Directional funds are hedge funds that don’t hedge — at least not fully. Managers of directional funds maintain some exposure to the market, but they try to get higher-than-expected returns for the amount of risk that
they take. Because directional funds maintain some exposure to the stock market, they’re said to have a stock-like return. A fund’s returns may not be steady from year to year, but they’re likely to be higher over the long run than the returns on an absolute-return fund.
Directional funds are the glamorous funds that grab headlines for posting double or triple returns compared to those of the stock market. The fund managers may not do much hedging, but they have the numbers that get
potential investors excited about hedge funds.
A directional strategy is most appropriate for aggressive investors willing to take some risk in exchange for potentially higher returns.
they take. Because directional funds maintain some exposure to the stock market, they’re said to have a stock-like return. A fund’s returns may not be steady from year to year, but they’re likely to be higher over the long run than the returns on an absolute-return fund.
Directional funds are the glamorous funds that grab headlines for posting double or triple returns compared to those of the stock market. The fund managers may not do much hedging, but they have the numbers that get
potential investors excited about hedge funds.
A directional strategy is most appropriate for aggressive investors willing to take some risk in exchange for potentially higher returns.
A “non-directional fund" OR an absolute-return fund
Absolute-return fund is designed to generate a steady return no matter what the market is doing. Alfred Winslow Jones managed his pioneering hedge fund with this goal, although the long-short strategy that he used was just one of several methods that snagged him consistent return.
Although absolute-return funds are close to the true spirit of the original hedge fund, some consultants and fund managers prefer to stick with the label absolute-return fund rather than “hedge fund.” The thought is that hedge funds are too wild and aggressive, and absolute-return funds are designed to be slow and steady.
In truth, the label is just a matter of personal preference. An absolute-return strategy is most appropriate for a conservative investor who wants low risk and is willing to give up some return in exchange. That falls in category of portfolio management.
Hedge fund managers can use many different investment tools within an absolute-return strategy.
Some say that absolute-return funds generate a bond-like return, because like bonds, absolute-return funds have relatively steady but relatively low returns.
The return target on an absolute-return fund is usually higher than the long-term rate of return on bonds, though. A typical absolute-return fund target is 8 percent to 10 percent, which is above the long-term rate of return on bonds and below the long-term rate of return on stock.
Although absolute-return funds are close to the true spirit of the original hedge fund, some consultants and fund managers prefer to stick with the label absolute-return fund rather than “hedge fund.” The thought is that hedge funds are too wild and aggressive, and absolute-return funds are designed to be slow and steady.
In truth, the label is just a matter of personal preference. An absolute-return strategy is most appropriate for a conservative investor who wants low risk and is willing to give up some return in exchange. That falls in category of portfolio management.
Hedge fund managers can use many different investment tools within an absolute-return strategy.
Some say that absolute-return funds generate a bond-like return, because like bonds, absolute-return funds have relatively steady but relatively low returns.
The return target on an absolute-return fund is usually higher than the long-term rate of return on bonds, though. A typical absolute-return fund target is 8 percent to 10 percent, which is above the long-term rate of return on bonds and below the long-term rate of return on stock.
Hedging vs speculating
Hedging is the process of reducing risk. Speculating is the processof seeking a high return by taking on a greater-than-average amount of risk.
Although hedging and speculating are opposing strategies, many hedge funds today use both.
Although hedging and speculating are opposing strategies, many hedge funds today use both.
Saturday 18 December 2010
Wednesday 15 December 2010
Accounts - Introduction
What is Accounting?
Accounting is the art of identifying, recording, and reporting financial information relating to a particular entity to interested parties. The main way of communicating this financial information is through financial statements, such as the balance sheet and income statement. There are two main streams of accounting:- Managerial accountingThis form of accounting provides accounting information to help managers make decisions to manage the business. Financial information is used by managers to set budgets, analyze the costs of the different products, control and monitor work in progress, and so on.
- Financial accounting
This form of accounting is used to prepare accounting information for people outside the organization or not involved in the day-to-day running of the company. Here we are mainly concerned with financial accounting.
1. Shareholder / Investors
2. Tax authorities
3. Lenders to company
4. Financial analysts
5. Suppliers
6. Employees
Organization forms
Monday 13 December 2010
Elements of financial statements
The 3 components of financial statements are :
1. Assets
2. Equity
3. Liability
Assets
Asset is economic resource which the entity owns or controls.
These can be fixed ( like property, plant ) with life of more than 1 year
OR
current ( like cash, inventory, accounts )
Liability
Liability is obligation of enterprise which will result in outflow of economic resources in future.
It can be current (like accounts payable or bank overdrafts ) or long term(like bank loan) with life more than year.
Equity or net assets
Equity = Assets - liability
Some other terms
Revenue or income represents the income that a business generates
Expenses - costs associated with running the business like wages, electricity bills
Gain - Increase in equity arising from the transactions outside of an entity's normal operating.
Loss - Opposite of gain
1. Assets
2. Equity
3. Liability
Assets
Asset is economic resource which the entity owns or controls.
These can be fixed ( like property, plant ) with life of more than 1 year
OR
current ( like cash, inventory, accounts )
Liability
Liability is obligation of enterprise which will result in outflow of economic resources in future.
It can be current (like accounts payable or bank overdrafts ) or long term(like bank loan) with life more than year.
Equity or net assets
Equity = Assets - liability
Some other terms
Revenue or income represents the income that a business generates
Expenses - costs associated with running the business like wages, electricity bills
Gain - Increase in equity arising from the transactions outside of an entity's normal operating.
Loss - Opposite of gain
Organizational Forms and the Business Goal
Financial accounting is important within all types of business organizations, the major forms of which are introduced here:
In sole proprietorships and partnerships, the owners and managers of the business are generally the same people. In companies, the owners (that is, the shareholders) do not necessarily manage the business. This separation of ownership and control, while having many advantages such as knowledge and experience in particular areas, often creates a conflict of interest. Owners or shareholders pay managers to run the business in their best interests. The manager's prime responsibility is to make decisions in the best interests of maximizing shareholder wealth, but managers may sometimes neglect their obligations to the shareholders.
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In sole proprietorships and partnerships, the owners and managers of the business are generally the same people. In companies, the owners (that is, the shareholders) do not necessarily manage the business. This separation of ownership and control, while having many advantages such as knowledge and experience in particular areas, often creates a conflict of interest. Owners or shareholders pay managers to run the business in their best interests. The manager's prime responsibility is to make decisions in the best interests of maximizing shareholder wealth, but managers may sometimes neglect their obligations to the shareholders.
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