Hedge Fund and Investment Analysis

Course Outline

The course develops a clear understanding of the principles of investment analysis and the informational content gained through the modelling of hedge fund returns data. The theoretical material is supplemented throughout the course with applied problem solving and implementation using key quantitative techniques and methods. In a nutshell, the course will provide the necessary theoretical foundations as well as the implementation and subsequent analysis of key hedge fund and investment models and practices.

Excel computer-based workshops will provide an excellent opportunity to get hands-on experience analysing hedge fund returns data, building hedge fund performance models, and developing hedge fund risk management techniques and strategies. These models will be available to take away and be immediately applied to real-world hedge fund investment analysis which can be developed further into more robust quantitative analysis and risk management toolsets for the working environment.

In addition, each delegate will be given a copy of the recently published book ‘Hedge Fund Modelling and Analysis Using Excel & VBA’ written by the course lecturer and which will form the core text for the course

Who The Course is For

Fund managers, asset managers, portfolio managers
Institutional investors and corporate finance professionals
Investment managers and professionals
Risk managers

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Prior Knowledge

Working knowledge of the hedge fund industry and the main investment strategies employed is a prerequisite for the course since this material will not be covered. some basic statistics and mathematics (e.g. probability distributions, mean and standard deviation, and portfolio management) would also be an advantage.

Experience of using Excel built-in functions and packages (e.g. matrix algebra, the Solver tool and regression analysis) in order to develop dynamic spreadsheet models is also recommended as well as some knowledge of VBA programming although not essential. Pre-course reading material will be provided to facilitate the above.

This program is eligible for 16 Continuing Education credit hours from the CFA Institute. If you are a CFA Institute member, CE credit for your participation in this program will be automatically recorded in your CE Diary.

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Day One

Session 1 – Understanding Hedge Fund data

Major hedge fund databases
- Database biases:
  - Survivorship
  - Instant History
  - Backfill
- Benchmarking
- Tracking error
Hedge fund drivers:
- Alpha
- Beta
- Alternative beta
Hedge fund indices:
- Investable
- Non-investable indices

Session 2 - Statistics for Hedge Funds

Risk and return measures
Higher moments:
- Skewness
- Kurtosis
Visual tests of normality:
- Inspection
- Normal Q-Q plot
Linear regression:
- Ordinary Least Squares (OLS)
- Coefficient of determination
Numerical tests of normality
- Jarque-Bera test
- Hypothesis testing
Portfolio theory:
- Mean-variance analysis
- Optimisation

Workshops:

Plotting an empirical Hedge Fund return distribution
A Q-Q plot to test for the normality of Hedge Fund returns
Regressing a Hedge Fund and benchmark index
Optimising a Fund of Hedge Fund investment allocation

Session 3 - Risk-adjusted performance measures

Sharpe ratio
Modified Sharpe ratio
Sortino ratio
Drawdown ratio
Information ratio
Treynor ratio
Jensen alpha

Workshop: Analysing a range of risk-adjusted hedge fund performance measures

Day Two

Session 4 - Hedge Funds asset pricing models

Capital Asset pricing Model (CAPM)
- Theoretical foundations
- Validation
- New extensions and developments

Multi-factor models:
- Principal Components Analysis (PCA)
Style analysis:
- Radar charts
- Herfindahl-Hirschmann Index (HHI)
- Rolling windows
Kalman filters
Cluster analysis:
- Manhattan distance