There are top hedge funds in India with massive growth events. Eureka hedge India Hedge Fund Index tracks hedge funds in India.
Hedge funds are actively managed investment that use modern investment strategies. They invest in complex asset classes. High minimum deposits are required in Hedge funds.
They charge higher fees than the traditional instruments.
What are Hedge Funds
Hedge funds trade in securities, currencies, bonds, commodities and derivatives, and initiate arbitrage.
The term ‘hedge’ says it all. The managers’ bet in an opposite direction of the fund’s focus. In other words, they offset losses that might occur in its core holdings.
Cyclical stocks like travel perform well when the economy is booming. A hedge fund manager will invest in non-cyclical stocks such as food companies. If the economy tanks, the profits of the cyclical stocks will offset the losses of non-cyclical stocks.
Hedge funds use riskier strategies. They use leverage. The managers borrow money to buy more of an asset to multiply their potential gains (or losses). They also invest in derivatives like futures and options.
They also opt for esoteric investments that conservative investors won’t touch.
SEBI does not regulate hedge funds the way mutual funds are. The appeal of hedge funds depends on the managers’ reputation. Hedge fund managers charge a fee of 1-2% of the assets and a performance fee of 20% of the profits.
Hedge funds investors are HNIs, pension funds, insurance companies, endowments, and banks. In the case of hedge funds, there is less market regulation.
They use high levels of leverage. It responds to market conditions and adjusts portfolios and exposures to eliminate risks. Thus, they are dynamic and time-varying.
What are the different strategies of hedge fund investing?
These funds can also be categorized by the complex strategies their fund managers adopt to maintain their funds.
- Event-driven – They invest to take advantage of price movements generated by corporate events.
- Market neutral – The fund managers minimize risks by investing in bonds and fixed income products.
- Long/Short selling – Short-selling means that you sell a security without actually buying it. One hopes for the share price to drop on a predetermined future date.
- Arbitrage – An arbitrage strategy means buying a security in one market where the security is trading at a lower price and then selling the same security at a higher price in another market to book some profit.
- Market-driven – Hedge funds take advantage of global market trends. They look at global macros and how they will impact interest rates and securities.
Difference between a hedge fund and mutual fund
Firstly, hedge funds accept money from only as HNIs, banks, insurance companies, etc. They charge higher minimum deposits. Secondly, hedge funds invest in anything- real estate, derivatives, etc., but mutual funds restrict their investments to bonds and stocks for the long term. Thirdly, and most importantly, hedge funds use leverage. They borrow money to amplify returns and take aggressive short and long positions.
Some top hedge funds in India are
- Munoth Hedge Fund – It invests in frontline Indian leaders. They take calculative investment decisions. Their 70 years of experience helps them to take well-informed decisions to invest in 50 universal stocks. They focus on value-added investment. Managers have the skills to make opportunities from adversities.
- Forefront Alternative Investment Trust – It is a Mumbai-based hedge fund. The target market is wealthy investors and corporations. Forefront Alternative Investment Advisors LLP manages it. It is India’s first registered domestic hedge fund under SEBI Category III AIF Regulations. It follows a fundamental macroeconomic strategy.
- IIFL Opportunities Fund – IIFL Opportunities aims to generate long term capital appreciation. They invest in equity and equity-related instruments. Above all, they provide the convenience to participate in IPO and pre-IPO events.
- Quant First Alternative Investment – Quant First is the first on-shore Index Derivatives Hedge Fund. It is registered as CAT-3 Hedge Fund in India.
- India Realty Fund – It is one of the largest real estate focus funds in India. The fund contributors include financial institutions, pension funds and endowments. It ensures diversification in real estate investments. For example, it invests in income-producing assets, redevelopment opportunities and ground-up development projects.
- India Zen Fund –India Zen invests in Indian mid-cap securities. Mauritius Motilal Oswal Asset Management Pvt. Ltd has sponsored this hedge fund.
World’s Top 10 Hedge Fund Firms: (AUM in Hedge funds)
- Blackrock Advisors ($789.57 Billion as on June 30th, 2021)
- AQR Capital Management ($224.8 Billion as on Mar 31st, 2020)
- Bridgewater Associates ($154 Billion as on Mar 31st, 2021)
- Renaissance Technologies ($130 Billion as on June 3rd, 2021)
- Man Group ($123.6 Billion as on December 31st, 2020)
- Elliott Management ($113.5 Billion as on December 31st, 2020)
- Two Sigma Investments ($68.9 Billion as on March 31st, 2021)
- Millennium Management ($42 Billion as on December 31st, 2019)
- Davidson Kempner Capital Management ($34.8 Billion as on January 31st 2021)
- Citadel Investors ($33.1 Billion as on March 31st, 2021)
To sum up, hedge fund managers use a variety of strategies. Managers develop customized risk factors. They adjust portfolios according to the changes in market trends. Hedge funds are flexible and different from traditional assets.
Hedge funds are risky. A concentrated investment strategy exposes hedge funds to potentially huge losses. In addition, these funds lock up money for a period of years. Moreover the use of leverage, or borrowed money, can turn a minor loss into a disastrous one.