International Diversification参考.ppt

CHAPTER 25 International Diversification CHAPTER 26 Hedge Funds Funds of Funds Funds that invest in one or more other hedge funds. Also called “feeder funds”. A way to diversify across many hedge funds. Supposed to provide due diligence in screening funds for investment worthiness. Madoff scandal showed that these advantages are not always realized in practice. Funds of Funds Optionality can have a big impact on expected fees. Fund of funds pays an incentive fee to each underlying fund that outperforms its benchmark even if the aggregate performance is poor. Diversification can actually hurt the investor in this case. Funds of Funds Spread risk across several different funds Investors need to be aware that these funds of funds operate with considerable leverage. If the various hedge funds in which these funds of funds invest have similar investment styles, diversification may illusory. Example 26.6 Incentive Fees in Funds of Funds A fund of funds has $1 million invested in three hedge funds Hurdle rate for the incentive fee is a zero return Each fund charges an incentive fee of 20% The aggregate portfolio of the fund of funds is -5% Still pays incentive fees of $.12 for every $3 invested Fund 1 Fund 2 Fund 3 Fund of Funds Start of year (millions) $1.00 $1.00 $1.00 $3.00 End of year (millions) $1.20 $1.40 $0.25 $2.85 Gross rate of return 20% 40% -75% -5% Incentive fee (millions) $0.04 $0.08 $0.00 $0.12 End of year, net of fee $1.16 $1.32 $.25 $2.73 Net rate of return 16% 32% -75% -9% * * * * * * Figure 25.11 Risks and rewards of international portfolios, 2000–2009 Performance Attribution The EAFE index is a commonly used benchmark for portfolio performance. Measure the contribution of: Currency selection Country selection Stock selection Cash/bond selection Table 25.15 Example of Performance Attribution: International Hedge Funds vs. Mutual Funds Hedge Fund Transparency: Limited Liability Partnerships that provide only minimal disclosure of strategy and portfo