Dubai Hedge Fund and Private Equity Activity

Dubai Hedge Fund and Private Equity Activity Trend



While Dubai is a tourism hotbed and most well known for its modern architecture, indoor ski slopes and record numbers of tourists it is fast positioning itself as the financial center for northern Africa and the middle east as a whole. There are over 400 investment firms now based in or that have plans to build offices in the Dubai Financial Center. The ease of investment regulations and low taxes have attracted hundreds of professionals to the area.

It was recently announced that Dubai International Capital (DIC) invested a 9.9% stake in an American hedge fund Och-Ziff earlier this month. Other US investment firms that have sold pieces of their firms to investment groups in Dubai include The Carlyle Group and Apollo Management. Each has resulted inminority ownership of less than 15%, but I believe we just starting to see the beginning of a trend here. More up and coming financial centers such as China, Brazil, and the United Arab Emirates will be playing catch-up to other financial centers by making large investments in US and UK based investment firms.

- Richard


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Differences Between Hedge Funds and Mutual Funds

Differences Between Hedge Funds and Mutual Funds

Hedge Funds vs. Mutual Funds

the difference between hedge funds and mutual funds I saw a question within another online hedge fund community regarding the differences between hedge funds and mutual funds and figured I would copy my answer to the individual here in my hedge fund blog. For those of you in the hedge fund industry this is obvious stuff so please just let me know if I missed something glaring.



Mutual Funds


  • Their performance is marked against a relevant benchmark which they try to beat in up years with superior performance and protect their investors with less losses in bad years- Pooled investment vehicle similar to a hedge fund.
  • They can use some securities that have returns traditionally uncorrelated with the overall market but in general they are limited to stocks, money market accounts, and bonds
  • Anyone can invest in mutual funds
  • Mutual funds calculate the price of their vehicle daily based on the number of investors and the market-rate or cost for a mutual fund goes up as it becomes more popular- You can find mutual fund of fund products and they have been rising in popularity in the past 5 years- Average cost of a mutual fund is 75 basis points or .75% per year

Hedge Funds

  • Contrary to what Investopedia will tell you hedge funds do not always invest in publicly traded securities. They often invest in art, futures, PIPE deals, real estate and other investment vehicles that aren't highly correlated to the general market.
  • Depending on who you ask there are around 12-14,000 hedge funds competing against each other- Hedge fund have developed (the media has developed) an image of hedge funds as being ultra risky employing dangerous levels of leverage- Hedge funds may invest in art, website domain names, stocks, bonds, options, futures, Foreign Exchange, or wind power farms
  • Hedge funds manage their portfolios aiming for absolute growth targets and they don't usually compare themselves against any stock exchange-based benchmark such as the S & P 500 or Russell 3000
  • Most hedge funds are attempting to invest their money that is uncorrelated with the overall market
  • You have to be an accredited investor (if you live in America. This means meeting high net worth standards) to invest in a hedge fund or hedge fund of fund product- There are several hedge fund of funds. These are investment vehicles that invest in other hedge funds. This way if someone has $2M to invest they can place it into a hedge fund of fund and they will create a portfolio for your funds so that it fits your specific appetite for risk- While fees are starting to come down the average hedge fund manager charges a 2% base fee and a 20% performance fee. Note: America is one of the only places where you have to be an accredited investor to invest in hedge funds.

- Richard

Richard C. Wilson

Richard@RichardCWilson.com

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Hedge Fund Domain (Website) Names

Hedge Fund Domain / Website Names


Needless to say a great hedge fund domain name for your business or fund can be hard to find. Many times 1 word names go for $10,000 to $50,000. I currently own 475 domain names a few of them relate to hedge funds. I'm looking to get rid of some domain names. Let me know if you are interested in buying any of these:

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http://hedgefundscareer.com/

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http://hedgefundscareer.com/

http://familyofficesgroup.com/

AlternativeInvestmentFirms.com

HedgeFundClones.com

HedgeFundComliance.info

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TopPrivateEquityFirms.com

- Richard

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R Squared Value | Statistic Formula Calculation

R Squared Value

R Squared Value | Statistic Formula Calculation

R-squared is a measure that indicates the extent to which fluctuations in portfolio returns are correlated with those of the general market. For example, an R-squared of 0.75 implies that 75% of the fluctuation in a portfolio's return is explained by the fluctuation in the market (the market risk level).

R-squared is used as a measure of how reliable, predictable, and valid the alpha and beta are. In Russell Performance Universes (RPU), r-squared is calculated as follows:

Formula for R-Squared

Where

Equals

r2

R-squared

n

Number of observations

Rxi

Market excess return
(market proxy return minus risk-free proxy return)

Ryi

Portfolio's excess return
(portfolio return minus risk free proxy return)


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Fiduciary Definition | Fiduciary Duties | Definition | What is Fiduciary?

Fiduciary Definition

Fiduciary Definition

Under ERISA, any person who: (a) exercises any discretionary authority or control over the management of a plan or the management or disposition of its assets, (b) renders investment advice for a fee with respect to the funds or property of a plan, or has the authority to do so, or (c) has any discretionary authority or responsibility in the administration of a plan.

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Probability Distribution Function | Normal LogNormal Proability Distribution

Probability Distribution Function

Normal LogNormal Proability Distribution

A function that describes all the values that a random variable can take and the probability associated with each. Also called a probability function.

Probability distributions can be:

Normal
A probability distribution that one forms a symmetrical bell-shaped curve.

Lognormal
A probability distribution in which the logarithm of the random variable follows a normal pattern. Lognormal distributions are used to describe returns calculated over periods of a year or more.

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Employee Retirement Income Security Act | Employee Retirement Income Security Act of 1974 | Definition | What is the ERISA?

Employee Retirement Income Security Act

Employee Retirement Income Security Act | Definition


Employee Retirement Income Security Act of 1974. A Federal law regulating employee benefit plans. ERISA requires that persons engaged in the administration, supervision, and management of pension monies have a fiduciary responsibility to ensure that all investment-related decisions are made: (a) with the care, skill, prudence, and diligence...that a prudent man...familiar with such matters would use...and (b) by diversifying the investments...so as to minimize risk.

This wording mandates two significant changes in traditional investment practice: (a) the age-old "prudent man" rule has been replaced by the notion of a prudent "expert," (b) the notion of a prudent investment has been replaced by the concept of a prudent portfolio.


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Portfolio Characteristics | Analysis of Style

Portfolio Characteristics

Portfolio Characteristics Analysis of Style

In Russell Style Classification (RSC), a sequential method of analyzing investment style developed and used by the Frank Russell Company's Manager Research Group. This method, also known as the Style Classification System (SCS), conditionally evaluates manager portfolio characteristics using non-linear probability of style membership functions to build a style assessment. The logic behind this system is explained by Chistopherson and Trittin (1995). The interest in portfolio characteristics flows from the expectation that portfolios with certain key equity characteristics will tend to earn a certain pattern of returns in the marketplace.

The equity characteristics analyzed are:

Price/Book

Dividend Yield

Price/Earnings

Return on Equity (5 Year)

Sector Deviation

Percent of Capitalization in the small cap segment

The characteristics are analyzed sequentially, or more precisely, conditionally, so that the assessment earlier in the chain of logic is refined using subsequent information. In this sense RSC's portfolio characteristics analysis of style is an artificial intelligence system.

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Department of Labor Gov | Definition | What is the Department of Labor Gov?

Department of Labor Gov

Department of Labor Gov | Definition

Department of Labor. A US federal regulatory body responsible, among other things, for the administration and enforcement of ERISA.


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Direct Trust | Definition | What is a Directed Trust?

Direct Trust

Direct Trust | Definition

A directed trust is one under which the trustee has less than full managerial authority. This will be the case whenever somebody else, who is not a trustee, has the power to control particular actions of the trustee. ERISA contemplates three different kinds of directed trusts. A plan may call for the shift of authority over assets, to whatever extent is desired from the trustee, (a) to plan participants or beneficiaries in respect of the assets allocated to their own individual accounts, or (b) to a "named fiduciary who is not a trustee," or (c) to an investment manager.

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Policy Effect Portfolio Management | Definition | What is it?

Policy Effect Portfolio Management

Policy Effect Portfolio Management | Definition

In Russell Performance Attribution (RPA), a calculation that measures the difference in return between the established set of guidelines by which the portfolio should be invested (the policy) and the neutral (market) position.

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Net Management Effect | Definition

Net Management Effect | Definition

Net Management Effect | Definition

The value added by active portfolio management. Russell Performance Attribution (RPA) derives this value by subtracting the benchmark return from the portfolio or composite return. The net management effect is the sum of the:

Allocation Effect
Measure of the impact of decisions to overweight or underweight particular asset categories relative to a benchmark. A positive allocation effect results from: (a) overweighting sectors or countries that produce greater returns than the benchmark average; or (b) underweighting sectors or countries that produce lower returns than the benchmark average.

Selection Effect
Measure of the impact of choosing securities that provide different returns from the benchmark. The selection effect evaluates the manager's skill in choosing better performing securities than those in the benchmark.

Interaction Effect
Measure of the combined impact of allocation and selection. In RPA interaction effects can be displayed separately on attribution reports or included with selection or allocation effect reports.

Currency Effect
Measures of the impact of overweighting or underweighting currency exposures in the portfolio relative to the benchmark. RPA calculates the currency effect when the local currency is different from the reporting currency. Spot exchange rates and 30-day forward exchange rates are used as currency data. The currency effect has two components: currency management effect (the results of managing currency surprise) and the forward premium effect.


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Net Management Effect | Definition | What is it?

Net Management Effect

Net Management Effect | Definition

The value added by active portfolio management. Russell Performance Attribution (RPA) derives this value by subtracting the benchmark return from the portfolio or composite return. The net management effect is the sum of the:

Allocation Effect
Measure of the impact of decisions to overweight or underweight particular asset categories relative to a benchmark. A positive allocation effect results from: (a) overweighting sectors or countries that produce greater returns than the benchmark average; or (b) underweighting sectors or countries that produce lower returns than the benchmark average.

Selection Effect
Measure of the impact of choosing securities that provide different returns from the benchmark. The selection effect evaluates the manager's skill in choosing better performing securities than those in the benchmark.

Interaction Effect
Measure of the combined impact of allocation and selection. In RPA interaction effects can be displayed separately on attribution reports or included with selection or allocation effect reports.

Currency Effect
Measures of the impact of overweighting or underweighting currency exposures in the portfolio relative to the benchmark. RPA calculates the currency effect when the local currency is different from the reporting currency. Spot exchange rates and 30-day forward exchange rates are used as currency data. The currency effect has two components: currency management effect (the results of managing currency surprise) and the forward premium effect.

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Stock Moving Average Calculation | Formula

Stock Moving Average Calculation

Stock Moving Average Calculation | Definition

(1) The mean value calculated at any time over a past period of fixed length.

(2) The average of security or commodity prices within a time series. The time period can be as short as a few days or as long as several years. As each new variable is included in calculating the average, the last variable of the series is deleted.

For example, a 14-day average of closing prices is calculated by adding the last 14 closes and dividing by 14. The result is noted on a chart. The next day the same calculations are performed, and the new result is connected to yesterday's with a solid or dotted line. And so forth.

Variations of the simple moving average are the weighted and exponential moving averages.

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Merton Henriksson Timing Test | Definition

Merton Henriksson Timing Test

Merton Henriksson Timing Test | Definition

In Russell Style Classification (RSC), an analysis used to determine whether a manager has any market timing ability. The standard regression is supplemented with a term that mimics the payoff to free puts. If the market is zero or down, the payoff is zero; and when the market is up, the payoff is the market return. This payoff pattern is captured in the second term of the regression below. Assuming a given risk-free proxy, the standard Capital Asset Pricing Model (CAPM) regression is modified to include interaction terms for upside market return.

When the timing coefficient is greater than zero and is statistically significant that means that the portfolio has market timing ability which is desirable. Conversely, when the timing coefficient is negative or zero and is not statistically significant that means that the portfolio does not have timing ability or their timing ability is perverse which is undesirable. Note that the alpha is likely to change because we are using more information than in the standard regression.


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Median Mean | Formula Calculation | What is it?

Median Mean

Median Mean | Formula Calculation

The middle value in a distribution, above and below which lie an equal number of values. The value (rate of return, market sensitivity, etc.) that exceeds one-half of the values in a population and that is exceeded by one-half of the values. The median has a percent rank of 50.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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What is the Mean | Calculation | Definition

What is the Mean | Calculation

What is the Mean | Calculation

A measure of central tendency, an average value around which observations tend to cluster.

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Market Proxy | Definition | What is a Market Proxy?Market Proxy

Market Proxy

Market Proxy | Definition


(1) The benchmark used to represent either the broad market or a segment of the market. The selection of the market proxy is critical in the determination of alpha, beta, R-squared, and standard error.

(2) In Russell Performance Universes (RPU), the relevant benchmark for comparing individual managers or a composite.


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Jensen Alpha | Jensens Alpha | Ratio | Definition | What is Jensen's Ratio?

Jensen Alpha

Jensen Alpha | Definition

The average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. Developed by Michael C. Jensen, this measure of a portfolio's alpha value is the most widely used measure of the risk to return trade-off. Also known as is the abnormal return or the risk adjusted excess return.

In Russell Style Classification (RSC), the Jensen alpha is calculated as follows:

Formula for Jensen Alpha

Where

Equals

image\ebx_1232661717.gif p

Jensen alpha

_
r
p

Average return of the portfolio

_
r
f

Average return of the risk-free proxy

_
r
m

Average return of the benchmark proxy

image\ebx_725430706.gif p

Beta of the portfolio


For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Internal Rate of Return Formula | Definition | What is Internal Rate of Return?

Internal Rate of Return Formula

Internal Rate of Return Formula | Definition


Internal Rate of Return.

(1) The rate of discount which makes the net present value of an investment equal to zero. Analogous to "yield to maturity" on a bond.

(2) A dollar-weighted rate of return. The interest rate that will make the present value of the cash flows from all the subperiods in the evaluation period for a money manager plus the terminal market value of the portfolio equal to the initial market value of the portfolio.


For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Information Ratios | Ratio Calculation Formula | 1 Page Guide

Information Ratios | Ratio Calculation

Information Ratios | Ratio Calculation Formula

A statistic that seeks to summarize the mean-variance properties of an active portfolio with a single number. The information ratio builds on the Markowitz mean-variance paradigm, which says that the mean and variance (or, equivalently, the mean and standard deviation) of returns are sufficient statistics for characterizing an investment portfolio.

In Russell Style Classification (RSC), the information ratio is calculated as follows:

Formula for Information Ratio

Related formulas:

Formula for Average Excess Return

Formula for Excess Return

Formula for Estimated Standard Deviation

Where

Equals

IR

Historical information ratio

__
ER

Average value of ERt over the historical period
from t=1 through T

Estimated Standard DeviationER

Estimated standard deviation over the same period

ERt

Differential or excess return in period t

Rpt

Return on an active portfolio in period t

RBt

Return on a benchmark portfolio or security in period t


For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Information Coefficient | Coefficients | Definition

Information Coefficient | Coefficients

Information Coefficient | Coefficients

The correlation between predicted and actual stock returns, sometimes used to measure the value of a financial analyst. An information coefficient (IC) of 1.0 indicates a perfect linear relationship between predicted and actual returns, while an IC of 0.0 indicates no linear relationship.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Calculate Hurdle Rate | Calculation | Definition

Calculate Hurdle Rate

Calculate Hurdle Rate | Definition

The return rate below which lies the down side for return analytics calculations. The hurdle rate is usually set to zero.

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Average Growth Rates of for in | Definition

Average Growth Rates

Average Growth Rates | Definition

Compound annual growth rate for the number of full fiscal years shown. If there is a negative or zero value for the first or last year, the growth is not meaningful and is typically marked “NM."

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Growth of Unit Value | Definition | What is it?

Growth of Unit Value

Growth of Unit Value | Definition

An historical analysis in which the rate of wealth accumulation of a particular investment instrument over a particular time range is computed.

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Expected Rate of Return | Definition | What is the Expected Rate of Return

Expected Rate of Return

Expected Rate of Return | Definition

The expected value or mean of a probability distribution of returns. The weighted arithmetic average of all possible outcomes, where the weights are the probabilities that each outcome will occur.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Weighted Rate of Return | Dollar Weighted | Definition | What is the Weighted Rate of Return?

Weighted Rate of Return

Weighted Rate of Return | Definition


The interest rate that will make the present value of the cash flows from all the subperiods in the evaluation period plus the terminal market value of the portfolio equal to the initial market value of the portfolio. Also called the internal rate of return.

The dollar-weighted rate is affected by the amount and the timing of cash flows during a given time period. This rate is an effective measure of the fund's rate of growth, giving full weight to the impact of cash flows on fund assets. The dollar-weighted rate also is referred to as the internal, discounted cash flow or the real rate of return. The term "money-weighted" is also used.


For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Market Decile Rank | Bear Market Decile Ranking

Market Decile Rank

Market Decile Rank | Definition

Measure of performance over time, rated on a scale of 1-10. For example, a value of 1 indicates that a mutual fund's return was in the top 10% of funds being compared, while 3 means the return was in the top 30%.

An "objective rank" compares all funds in the same investment strategy category, whereas an "all rank" compares all funds regardless of investment strategy.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Currency Surprise | Definition | What is it?

Currency Surprise

Currency Surprise | Definition

The component of the currency return that is not known in advance. This is the amount of the currency return that exceeds or falls short of the forward currency premium.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Currency Return | Total Local Currency Returns

Currency Return

Total Local Currency Returns

(1) A rate of return calculated from the change in exchange rates between one currency and another.

(2) The percentage of return that results from the fluctuation in exchange rates between the local currency and the reporting currency.

For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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Cumulative Rate of Return | Calculate Formula Calculation

Cumulative Rate of Return

Calculate Cumulative Rate of Return

(1) A compounded rate of return covering more than one year.

(2) The total return on an investment over a specified time period. For example, a $100 investment that grows to $200 in ten years has a ten-year cumulative return of 100%. The cumulative rate of return is computed from the earliest to the latest time period selected.

In Russell Performance Universes (RPU), cumulative rate of return is calculated as follows:

Formula for Cumulative Rate of Return

Where

Equals

Rc

Cumulative rate of return

n

Number of observations

Ri

i-th return


For over 1,000 additional terms and definitions please see our Investment Glossary Guide.

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