Hedge Fund Course

304 Pages·2005·1.96 MB·English

by  Stuart A. McCrary

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Hedge Fund
Course
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Founded in 1807, John Wiley & Sons is the oldest independent publishing
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Hedge Fund
Course
STUART A. M CRARY
C
John Wiley & Sons, Inc.
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Copyright © 2005 by Stuart A. McCrary. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in
any form or by any means, electronic, mechanical, photocopying, recording, scanning, or
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the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ
07030, 201-748-6011, fax [phone].
Note: Some of the material in this book is very technical and involves issues where
professional judgment is imperative. Material may be outdated. Many hedge funds display
unique aspects that may contradict statements in this book. The information in this book is
believed to be reliable but it is up to the reader to confirm everything with lawyers,
regulators, accountants, investment professionals, or tax professionals.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their
best efforts in preparing this book, they make no representations or warranties with respect
to the accuracy or completeness of the contents of this book and specifically disclaim any
implied warranties of merchantability or fitness for a particular purpose. No warranty may
be created or extended by sales representatives or written sales materials. The advice and
strategies contained herein may not be suitable for your situation. You should consult with a
professional where appropriate. Neither the publisher nor author shall be liable for any loss
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For more information about Wiley products, visit our web site at www.wiley.com.
Library of Congress Cataloging-in-Publication Data:
McCrary, Stuart A.
Hedge fund course / Stuart A. McCrary
p. cm. — (Wiley finance series)
Includes bibliographical references and index.
ISBN 0-471-67158-4 (pbk.)
1. Hedge funds. I. Title. II. Series.
HG4530.M379 2005
332.64'524—dc22
2004015547
Printed in the United States of America.
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To my loving wife, Nancy
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Contents
Preface ix
Acknowledgments xiii
About the Author xv
CHAPTER 1
Introduction 1
CHAPTER 2
Types of Hedge Funds 19
CHAPTER 3
Types of Hedge Fund Investors 35
CHAPTER 4
Hedge Fund Investment Techniques 59
CHAPTER 5
Hedge Fund Business Models 73
CHAPTER 6
Hedge Fund Leverage 87
CHAPTER 7
Performance Measurement 107
CHAPTER 8
Hedge Fund Legislation and Regulation 127
CHAPTER 9
Accounting 135
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viii CONTENTS
CHAPTER 10
Hedge Fund Taxation 157
CHAPTER 11
Risk Management and Hedge Funds 175
CHAPTER 12
Marketing Hedge Funds 193
CHAPTER 13
Derivatives and Hedge Funds 203
CHAPTER 14
Conclusions 217
Answers to Questions and Problems 225
Index 275
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Preface
B
usiness bookstores contain many different books on the general topic of
hedge funds. Most of these books are written for potential investors.
These books focus primarily on the investment characteristics of hedge
funds, admittedly the most important topic related to this investment alter-
native. Some of these texts are little more than marketing devices designed
to encourage greater use of hedge funds in investor portfolios. An investor
considering an investment in a hedge fund for the first time should read one
or two of these books before making an investment.
To reach a large market, these investment books are mostly written at a
very simple level. They generally do not presume any prior knowledge of
investments, finance, mathematical methods, accounting, or the law. The
authors develop a survey that usually leaves the reader less than an expert
after reading the text. After getting a general background, the investor will
likely need to hire some combination of investment professionals, tax ad-
visers, accountants, and lawyers before making an investment.
A small number of books have been written for professionals. Usually,
these books are not sold commercially. Instead, they are distributed by law
firms and accountants to their customers, and most readers cannot get
copies of them. Even if available, these books, while they are extremely
valuable to professionals, should provide little value to most readers be-
cause of the highly technical treatment of narrow topics.
The academic research on hedge funds is accumulating. The ambitious
student can read a survey of the important papers concerning hedge funds
and develop a good understanding of this important investment product.
But few people have the time or background to learn about hedge funds
from academic papers.
Some books have been written for the entrepreneur who wants to start
a hedge fund. I wrote one of these for John Wiley & Sons a couple of years
ago and have discovered that there is considerable demand for a book that
bridges the gap between the nontechnical texts written for mass appeal and
the technical books and academic papers. Although the previous book was
a bit more technical than most others on the market, it also included infor-
mation needed by hedge fund venture capitalists.
This book serves to bridge another gap. It provides an extensive survey
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