Speaking
at a seminar on ‘Hedge Funds: An Alternative Investment
Option & Analytical Framework’ held at Indian Institute
of Finance, Delhi, Dr. Nandita Das, Assistant Professor of
Finance, Bloomsburg University of Pennsylvania, USA said Hedge
funds, as an alternative investment vehicle, have enjoyed
healthy growth in recent years and continue to increase in
popularity. Hedge funds became popular for their philosophy
of trying to outperform the overall market through individual
stock and security selection, and by taking market neutral
positions in an effort to protect financial capital in times
of market volatility. In today’s context, ‘Hedge
Fund’ is used to describe a wide range of investment
vehicles that can vary substantially in terms of size, strategy,
and organizational structure said Dr. Das.
According
to her, Hedge funds invest in a variety of liquid assets just
like mutual funds, but are quite different from mutual funds.
High net worth individuals have dominated the hedge fund industry
for a long time. An increasing number of institutions are
allocating a small portion of assets to alternative investments
owing to the long-term success of some hedge funds. Hedge
funds are becoming a part of the mainstream investor’s
portfolio. Hedge funds provide very limited information to
the investors. Sources of data for the industry are the hedge-fund
database providers. These databases provide information drawn
from the fund-offering documents; such as contractual provisions,
descriptions of investments, styles of investment and the
periodic return. While many hedge fund characteristics have
changed significantly, many fundamental features have remained
the same asserts Dr. Das. Moreover, hedge funds are no longer
unique to the U.S. markets, but exist in many areas around
the world. According to her, hedge-fund databases vary with
the types of funds included and their classifications. Research
results on hedge-fund performance may then differ depending
on the database, making them extremely difficult to compare.
While
explaining the results of study conducted by her in the area
to validate the conjecture that there are diseconomies of
scale in the hedge fund industry, Dr. Nandita said that the
results indicate that the hedge fund managers have been able
to use leverage to their advantage, but have not been successful
in the use of currency. They indicate that hedge fund managers
are able to profit from minor price differentials through
the use of higher amount of investment.
While
describing the objective of the seminar as most appropriate,
Dr. Das emphasised the need to explore different areas of
hedge fund research and to contribute to the present body
of knowledge of this rapidly developing area of financial
economics.
While
chairing the seminar, Prof. Aman Agarwal, Director, IIF Business
School said a hedge funds instruments have seen tremendous
growth in the last one decade, although they have been in
existence since 2000 B.C. He said that he had traced back
history showing existence of derivatives instruments, which
are nothing but hedging instruments. Many of these have had
their origin in the then India. The nature and scope of the
hedge funds instruments have changed over time. Mutual funds
offer one of the basic and simplest kind of hedge fund instruments
around the world. Prof. Agarwal, reiterated that the last
decade has observed tremendous development under hedge fund
companies internationally.
According
to Prof. Agarwal, the hedge funds institutions in India are
still yet to explore the vast stream of instruments in existence
in the international market. They have been primarily restrained
from operations due to market imperfection and regulatory
norms defined by SEBI and RBI. Prof. Agarwal stressed that
in the years to come, the hedge funds instruments would be
one of the key instruments for investors with different risk
profiles.
While
appreciating the model presented by Dr. Nandita, he said the
model has positive results and can be used by the hedge fund
industry for evaluation and forecasting purposes.
