Question

• Essay questions:

• 1. Please describe the role of alternative strategies within the asset management industry. Why are these type of funds gathering assets – what makes these type of funds strategies interesting to the investors.

• 2. Lately alternative hedge funds have become more activist funds (taking stakes in companies and gathering board representation) – what does that mean and what are the consequences of activist hedge funds in that companies and in the overall market. Please use examples discussed during out classes.

Answer 1

To explain the role of alternative strategies within the asset management industry we can describe the following-

Alternative investment in the  financial asset management industry deals with categories that does not fall into one of the conventional equity or other investment categories. Alternative strategies help to make use of the best opportunities in the market . These active strategies are developed by the hedge fund managers as per the client’s requirements.

-> Alternative Investment strategies make the investment portfolio more versatile.

-> Helps to tide over the short term market volatility

-> Can make use of both long and short positions in the investment portfolio unlike traditional investments.

-> Convertible Arbitrage and hybrid securities are also deployed on bonds used in the delta neutral position hedge funds .

These types of funds are gathering assets and having high relevance due to the following reasons

-> Alternative investment strategies on hedge funds have higher leveraged position on their yield curve and overall return.

-> Lower fees of management than conventional portfolios managed by investment banks for individuals.

-> Lower regulatory requirements and scope of obtaining arbitrage returns.

-> Relatively more use of concentrated portfolios .

-> Liquidity and redemption tailored as per the investors risk appetite.

Activist alternative investment offers a different definition given by radical alternate fund managers.

They usually have a focused, long-term portfolio composed of a large minority portfolio enterprises stakes. The goal is to shift the strategic course profitably, investment firms financial structure or management.

Activist alternative investment ca generally be classified into three distinct categories

1 Gentle Activism – mainly quiet and informal way of managing.

2 Soft Activism- Board representation having formal shareholder proposal.

3 Aggressive Activism – Deals with M&A activities and aggressive deployment of investment management strategies.

Examples of few alternative hedge fund management strategies include the following –

->Event driven Strategies – Dealing with M&A activities , distressed asset reconstructing and activist shareholding

->RV Strategies – Relative Valuation Strategies dealing with Convertible arbitrage , ABS securities backed by specific asset and driven by volatility

->Macro Strategies

-> Equity hedging strategies – Deals with the fundamental valuation of growth in the quantitative direction of market using undervaluation and overvaluation .