|Comprehensive Overview of Hedge Fund Investing
Introduction and Overview (½ class): structural industry overview; analysis of historical industry performance and benchmarks, fund structure; investor eligibility criteria, terms and conditions of investing including fees and liquidity
Detailed Discussion of Hedge Fund Strategies (5 ½ classes): long/short equities and credit, activist investing, distressed corporate debt, equity derivative and fixed income arbitrage, event driven investing, asset based lending, and macro
Investment and Non-Investment Due Diligence (1 ½ classes): decision and control, investment decision making, background of key staff, product offerings, investment goals and processes, hedge fund operations and internal controls – valuation methodology, compliance, background investigations, government regulation, Madoff case study
Portfolio Construction and Risk Management (1 class): source and structure of leverage/margin, counterparty risk management, first and second order risks, risk limits, attribution analysis, role of hedge funds in traditional portfolios
Strategic Industry Developments (1 ½ classes): challenges faced by the hedge fund CEO; monetization of alternative investment firms; vision for the future
The course is designed for highly motivated MBAs (expected work load 5 - 10 hours per week) with primary interest in pursuing an investment related career. The format of the class will typically include: ½ hour interactive discussion of readings and group presentations; 1 ½ hour lecture; plus 1 hour presentation by invited guest speaker, an industry expert on the topic of the week.
The class will be treated as a virtual Investment Committee. Each student will be expected to perform as they were in the real world in terms of research and preparation and quality/sophistication of questions and insights, as well as challenges to the conclusions or approaches suggested by other members of the Committee. There will be extensive readings for the course, in much the same way as there is information overload in the investment world. The challenge for the student will be to digest/skim all of the materials, develop an understanding of the larger context of the relevant issues, and then identify the critical information. This is a concept based course; there will be no tests based on memorization or derivation of formulae.
The format of the typical class will include a discussion of the weekly paper assignment, a lecture by Professor Small, and a lecture by an invited prominent industry professional. During the second half of the course, student groups will present their investment idea group project to the Investment Committee for consideration.
Guest lecturers scheduled to present for Winter 2014 include: Brian Feltzin and Craig Albert (Sheffield – long/short equity), Peter May (Trian – activist investing), Alec Litowitz (Magnetar – invited, event driven and structured credit), Bennett Goodman (GSO – credit long/short), Mike Nash (Blackstone – real estate marketable securities), Jon Pollock (Elliott – activist investing, distressed, multi-strategy), Brian Taylor (Pine River – relative value, structured credit, fixed income arbitrage), and Ken Griffin (Citadel – long/short, macro, multi-strategy).
The ACCESS Program offers a limited number of enrolled students the ability to speak with senior investment professionals from a number of leading hedge funds. These calls will be made during February 2014. Each participating industry professional has agreed to a 45-60 minute phone call (at a time and date convenient for them) with a student from the class. The focus of these call include: career path and attributes critical to success, assessment of the current market environment, attributes of a successful investor, and recommended reading. Student selected for participation in the ACCESS program will be based on the quality of class participation and weekly Individual Mini-Papers during the first few weeks of class.
In order to participate in the ACCESS program, students must also commit to and write a memorandum to the Investment Committee (e.g., all students in the class) describing the call. The format for these memorandae will be described to students invited to participate in this program. These papers will be compiled and shared with all of the students in the class.
While there is no grade or extra credit for participating in the ACCESS program, participating students may substitute the ACCESS program memorandum for one weekly assignment (weeks 7 – 10).
Firms that participated in the ACCESS program for 2013 included:
Anchorage (credit – New York), Blackstone Real Estate (real estate – New York), Blue Mountain (credit – New York), Canyon (credit, event driven – Los Angeles), Citadel (multi-strategy, Chicago), Eton Park (multi-strategy – New York), King Street (credit – New York), Marathon (multi-strategy – New York), Ore Hill (credit – New York), Perry Capital (credit, event driven – New York), Pine River (multi-strategy, Minneapolis), Secor (TAA, Alpha Strategies – New York), Silver Point (credit – New York)
|A specific required set of articles/readings which will be posted in Chalk and a set of required books which must be purchased, plus a broader bibliography of suggested readings that are interesting and provide perspective. Overall, eclectic set of readings including academic empirical articles related to hedge fund performance, measurement bias, and return attribution; memorandums by industry experts, Wall Street firms, regulators, and corporations relating to: effectiveness of government regulation, case for hedge funds, standards for investment and non-investment due diligence; specific hedge fund Offering Memorandum; books on hedge fund strategies/investing, profiles and philosophies of famous and successful alternative investors, risk management and Black Swan events.
Required Text Books:
- Handbook of Hedge Funds. Lhabitant, Francois-Serge. John Wiley & Sons, Ltd., 2006, ISBN 13 978-0-470-85667-3 (HB)
- Distress Investing – Principles and Technique. Whitman, Martin J; Diz, Fernando. John Wiley & Sons, Inc., 2009. ISBN 978-0-470-11767-5
- The Black Swan – The Impact of the Highly Improbable. Taleb, Nassim Nicholas. Random House, Second Edition, 2010, ISBN 978-0-8129-7381-5
- Hedge Fund Operational Due Diligence – Understanding the Risks. Scharfman, Jason A. John Wiley & Sons, Ltd., 2009, ISBN 978-0-470-37234-0 (cloth)
Video Library of Selected Prior Speakers:
Enrolled students will have access to a library of videos of prior speakers via CHALK:
Scott Esser and Martin Klein, Hedge Fund Research, database and index construction; Brian Feltzin and Craig Albert, Sheffield Capital, long/short equity investing; Brian Taylor, Pine River, arbitrage and structured credit investing; Peter May, Trian Capital, activist equity investing; Peter Weiland, former CRO of CIO, JP Morgan, managing risk at JP Morgan; Ivaldo Basso, Grosvenor Capital Management, non-investment due diligence; Bennett Kaplan, Axium Consulting LLC, background investigations
Scott Esser and Martin Klein, Hedge Fund Research, database and index construction; Brian Taylor, Pine River, arbitrage and structured credit investing; Michael McCormick, Bank of America Prime Brokerage, role of prime brokers; Ivaldo Basso, Grosvenor Capital Management, non-investment due diligence; Bennett Kaplan, Axium Consulting LLC, background investigations; Scott Lederman, Grosvenor Capital Management, hedge fund regulation; Matt Stone, Kate Carder, Prakhar Bansal, University of Chicago Endowment, role of alternatives and hedge funds in an endowment portfolio
Ted Koenig, Monroe Capital, asset based lending; Ken Griffin, Citadel, Citadel and the 2008 financial crisis
|Class participation (including attendance); since the class will be treated as an Investment Committee, it is expected that all questions, discussions, and presentations will reflect preparation, professionalism, and precision: 20%;
Weekly 1 page individual mini-paper discussing single topic of interest or insight from readings: 35%;
Two group projects: analyzing/recommending a specific investment opportunity, that includes both a long and a short idea; building an optimal portfolio of hedge funds, maximum of 10 pages plus class presentation of one project: 20 %;
Final individual paper on (approved) topic of choice such as evaluation of specific hedge fund investment, risk management of complex portfolio, evaluation of financing/leverage structure, maximum of 10 pages: 25 %.
Course cannot be taken pass/fail. No auditors allowed.
We expect to have access to one of the hedge fund industry’s leading analytics package, eVestment PERTRAC Analytics (www.pertrac.com) as well as to the HFR Academic database comprised of thousands of hedge funds to be used for one of the group projects and, optionally, in the final paper. There are four computers with the PERTRAC software/HFR database loaded: two in the Gleacher 110 Computer Lab and two in the Harper C50 Computer Lab.