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Distressed Securities Related Scholarly Compositions
See also:
Distressed
Securities Related News,
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Related Books,
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The Administrative Costs of Debt
Restructurings
by Brian L. Betker
Ohio State University
November, 1995
Abstract
I re–examine direct restructuring costs in light of recent
developments in reorganizing financially distressed firms:
prepackaged bankruptcies, failed HLTs, “vulture” investors, and
informal pre-restructuring bondholder committees. Prepackaged
bankruptcy costs are lower than in traditional Chapter 11, and
are similar to the costs of exchange offers. Direct costs are
lower if the firm is an HLT, but these cost savings decline as
the fraction of public debt in the capital structure rises...
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Analyzing and Explaining Default
Recovery Rates
by Edward I. Altman, Andrea Resti, & Andrea Sironi
December, 2001
Abstract
This comprehensive report analyzes the impact of various
assumptions about the
association between aggregate default probabilities and the loss
given default on bank loans and corporate bonds, and seeks to
empirically explain this critical relationship. The analysis has
important implications for the results of various value -at-risk
credit risk models as well as the fundamental factors which
influence fixed income portfolio models and strategies.
Virtually all of the literature on credit risk management models
and tools treat the important recovery rate variable as a
function of historic average default recovery rates, conditioned
perhaps on seniority and collateral factors, and in almost all
cases as
independent of expected or actual default rates...
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The Brave New World of Hedge Fund
Indices
by Noël Amenc and Lionel Martellini
October 19, 2002
Abstract
The fact that hedge funds have started to gain widespread
acceptance while remaining a somewhat mysterious asset class
enhances the need for better measurement and benchmarking of
their performance. One serious problem is that existing hedge
fund indices provide a somewhat confusing picture of the
investment universe. In this paper, we first present detailed
evidence of strong heterogeneity in the information conveyed by
competing indices. We also attempt to provide remedies to the
problem and suggest various methodologies designed to help build
a “pure style index”, or “index of the indices” for a given
style. We first explore a statistical approach to the
construction of pure style indices, using Kalman filter
techniques for the estimation of an unobservable factor from
competing index return observations. Because it is desirable
that a pure index can be regarded as a portfolio of existing
indices, and hence a portfolio of underlying funds, we also
suggest a portfolio approach to the problem. In particular, we
suggest to use principal component analysis to extract the “best
possible one-dimensional summary” of a set of competing indices,
and to use minimum variance analysis to extract the “least
biased portfolio” from a set of competing indices. Finally, we
also provide evidence of the ability of pure style indices to
improve benchmarking of hedge fund returns. Our results can
easily be extended to traditional investment styles such as
growth/value, small cap/large
cap.
Visit www.EDHEC-Risk.com for the full
paper...
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The Dangers of Mechanical
Investment Decision-Making: The Case of Hedge Funds
by Harry M. Kat
November 28, 2003
Abstract
Over the last 20 years, investors have come to approach
investment decision-making in an increasingly mechanical manner.
Optimisers are filled up with historical return data and the
‚optimal™ portfolio follows almost automatically. In this paper
we argue that such an approach can be extremely dangerous,
especially when alternative investments such as hedge funds are
involved...
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Distressed Debt-Investing in
Deutschland
by Christoph Schalast and Christian Daynes
HfB Business School of Finance & Management
September, 2005
Abstract
The global distressed debt market has been established for some
years now, however within this investment universe German
Distressed Debt is generally considered as underdeveloped. The
aim of this paper is to highlight why Investments are transacted
and the framework of processes involved within the German market
additionally; the paper focuses on current active investors and
concludes with a market survey covering the impressions of these
participants.
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Diversifying among Hedge Fund
Strategies: An Alternative Frontier
by Emily Perskie
Duke University
Spring 2003
Abstract
The goal of this study is to create optimal portfolios of hedge
funds. This paper discusses the different investment styles
within the hedge fund universe along with their specific risk,
return, and correlation characteristics. Markowitz’s portfolio
selection model is used to create an efficient frontier to
determine the best way for an investor to allocate capital among
hedge fund strategies...
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Empirical Characteristics of
Dynamic Trading Strategies: The Case of Hedge Funds
by William Fung & David A. Hsieh
Paradigm, LDC & Duke University
Abstract
This article presents some new results on an un-explored dataset
on hedge fund performance. The results indicate that hedge funds
follow strategies that are dramatically different from mutual
funds, and support the claim that these strategies are highly
dynamic. The article finds five dominant investment styles in
hedge funds, which when added to Sharpe’s (1992) asset class
factor model can provide an integrated frame-work for style
analysis of both buy-and-hold and
dynamic trading strategies...
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A Firm’s Choice of Methods for
Reducing Financial Distress
by Hui Yang
Kansas State University
Abstract
This paper presents some important aspects of the prepackaged
bankruptcy, its
relative advantages and disadvantages, comparing with other
restructuring methods, i.e., traditional bankruptcy and
out-of-court workouts. An ordered logit model is used to explore
the economic rationale behind the firm’s choice in dealing with
financial distress, and identify the firm characteristics
affecting its choice of methods for reducing financial
distress...
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Hedge Funds: Approaches to
Diversification
by Amy Ballew, Meenu Gupta, Geoffrey Lasry, & Ariel Weinberger
Kellogg School of Management
June 17, 2002
Abstract
This paper has two goals: to determine if hedge funds are a
separate asset class and if so, if any of the correlations
between hedge fund strategies are low enough to enable fund of
fund managers to strategically diversify within the hedge fund
arena. Our findings indicate that hedge funds should be
considered a separate asset class; they do not have a
significant relationship with other asset classes and hedge
funds, as a group, react in similar ways to certain external
factors.
Further, our analysis shows that a fund of funds manager could
improve the Sharpe ratio of his or her fund by implementing our
systematic approach to fund of funds diversity; the simulation
reduced the volatilities (risk) without meaningful effect on the
returns...
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Hedge Funds Indices: An
Evaluation in a Downside Risk Framework
by Marcus Andersson & Jonas Jerkander
Gothenburg University
June, 2004
Abstract
The aim of this master thesis was to examine the different hedge
fund strategies in terms of risk, return and risk-adjusted
return, in order to conclude whether the hedge fund’s strategy
affect the fund’s performance. We have used an alternative
evaluation framework, namely Downside risk. We have applied this
technique on our fourteen evaluated hedge fund strategies to
conclude whether the strategy is important for the funds risk
and return characteristics...
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Hedge Fund Portfolio Selection
With Higher Moments
by Saverio Massi Benedetti
University of Zurich
December 28, 2004
Introduction
Financial assets returns are in general not normally
distributed. Strong empirical
evidence against the normality of the returns has been reported
in the past years by several authors. This evidence suggests
that the probability distribution followed by the returns is
often characterized by skewness and leptokurtic
behaviour...
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Integrating Hedge Funds into the
Traditional Portfolio
by Harry M. Kat
Cass Business School - City University, London
January 5, 2005
Abstract
In this summary paper we show how investors can neutralize the
unwanted skewness and kurtosis effects from investing in hedge
funds by (1) purchasing out-of-the-money equity puts, (2)
investing in managed futures, and/or by (3) overweighting equity
market neutral and global macro and avoiding distressed
securities and emerging market funds. We show that all three
alternatives are up to the job but also come with their own
specific price tag...
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Market Dynamics and Investment
Performance of Distressed and Defaulted Debt Securities
by Edward I. Altman
December 1998
Abstract
The market for investing in distressed and defaulted debt is
continuing to receive a great deal of attention despite the
shrinkage in the supply of new securities in the last few years
and the recent (1997-98) poor return performance to investors.
This is primarily due to the expected growth in the supply of
new distressed and defaulted public and private debt paper, the
perception that prices are now at attractive levels and the
documented relatively low correlation of returns with the more
traditional debt and equity markets. This article reviews some
of the important attributes of this unique investment vehicle
and updates our analysis of the risk and return performance of
defaulted debt...
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A Nonparametric Assessment of the
Diversification Benefits of Hedge Funds
by Muzaffer Emre Balta
Gothenburg University
January 8, 2003
Abstract
In this article, the return characteristics of hedge fund
indices over the period 1990 through 2001 are analyzed. Most of
the commonly used performance measures of hedge funds, such as
the Sharpe ratio and the Jensen alpha, assume an a priori
frequency distribution of returns, which, under certain
conditions, may result in erroneous inferences. Meanwhile, a
non-parametric method allows the data to determine the shape of
the functional form rather then imposing the parametric
straightjacket of rigid distributional assumptions...
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On Taking the ‘Alternative'
Route: Risks, Rewards and Performance Persistence of Hedge Funds
by Vikas Agarwal & Narayan Y. Naik
November, 1999
Abstract
This paper provides a comprehensive analysis of the risk-return
characteristics, risk exposures, and performance persistence of
various hedge fund strategies using a database on hedge fund
indices and individual hedge fund managers. In a mean-variance
framework, we find that a combination of alternative investments
and passive indexing provides significantly better risk-return
tradeoff than passively investing in the different asset
classes. Using a broad asset class factor model, we find that
the hedge fund strategies outperform the benchmark by a range of
6% to 15% per year...
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Smooth Returns and Hedge Fund
Risk Factors
by John Okunev and Derek White
August, 2002
Abstract
This paper analyzes the risk characteristics for various hedge
fund strategies
specializing in fixed income instruments. Because fixed income
hedge fund strategies have exceptionally high autocorrelations
in reported returns and this is taken as evidence of return
smoothing, we first develop a method to completely eliminate any
order of autocorrelation process across a wide array of time
series processes. Once this is complete, we determine the
underlying risk factors to the “true” hedge fund returns and
examine the incremental benefit attained from using nonlinear
payoffs relative to the more traditional linear factors...
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Back to Scholarly Compositions
See also:
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Related News,
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Books,
or
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| HEDGE FUND RISK AND OTHER
DISCLOSURES |
Hedge funds, including fund of funds (“Hedge
Funds”), are unregistered private investment partnerships, funds or
pools that may invest and trade in many different markets,
strategies and instruments (including securities, non-securities and
derivatives) and are NOT subject to the same regulatory requirements
as mutual funds, including mutual fund requirements to provide
certain periodic and standardized pricing and valuation information
to investors. There are substantial risks in investing in Hedge
Funds. Persons interested in investing in Hedge Funds should
carefully note the following:
- Hedge Funds represent speculative investments and involve a
high degree of risk. An investor could lose all or a substantial
portion of his/her investment. Investors must have the financial
ability, sophistication/experience and willingness to bear the
risks of an investment in a Hedge Fund.
- An investment in a Hedge Fund should be discretionary capital
set aside strictly for speculative purposes.
- An investment in a Hedge Fund is not suitable or desirable for
all investors. Only qualified eligible investors may invest in
Hedge Funds.
- Hedge Fund offering documents are not reviewed or approved by
federal or state regulators
- Hedge Funds may be leveraged (including highly leveraged) and
a Hedge Fund’s performance may be volatile
- An investment in a Hedge Fund may be illiquid and there may be
significant restrictions on transferring interests in a Hedge
Fund. There is no secondary market for an investor’s investment in
a Hedge Fund and none is expected to develop.
- A Hedge Fund may have little or no operating history or
performance and may use hypothetical or pro forma performance
which may not reflect actual trading done by the manager or
advisor and should be reviewed carefully. Investors should not
place undue reliance on hypothetical or pro forma performance.
- A Hedge Fund’s manager or advisor has total trading authority
over the Hedge Fund.
- A Hedge Fund may use a single advisor or employ a single
strategy, which could mean a lack of diversification and higher
risk.
- A Hedge Fund (for example, a fund of funds) and its managers
or advisors may rely on the trading expertise and experience of
third-party managers or advisors, the identity of which may not be
disclosed to investors
- A Hedge Fund may involve a complex tax structure, which should
be reviewed carefully.
- A Hedge Fund may involve structures or strategies that may
cause delays in important tax information being sent to investors.
- A Hedge Fund may provide no transparency regarding its
underlying investments (including sub-funds in a fund of funds
structure) to investors. If this is the case, there will be no way
for an investor to monitor the specific investments made by the
Hedge Fund or, in a fund of funds structure, to know whether the
sub-fund investments are consistent with the Hedge Fund’s
investment strategy or risk levels.
- A Hedge Fund may execute a substantial portion of trades on
foreign exchanges or over-the-counter markets, which could mean
higher risk.
- A Hedge Fund’s fees and expenses-which may be substantial
regardless of any positive return- will offset the Hedge Fund’s
trading profits. In a fund of funds or similar structure, fees are
generally charged at the fund as well as the sub-fund levels;
therefore fees charged investors will be higher that those charged
if the investor invested directly in the sub-fund(s).
- Hedge Funds are not required to provide periodic pricing or
valuation information to investors.
- Hedge Funds and their managers/advisors may be subject to
various conflicts of interest.
The above general
summary is not a complete list of the risks and other important
disclosures involved in investing in Hedge Funds and, with respect
to any particular Hedge Fund, is subject to the more complete and
specific disclosures contained in such Hedge Fund’s respective
offering documents. Before making any investment, an investor should
thoroughly review a Hedge Fund’s offering documents with the
investor’s financial, legal and tax advisor to determine whether an
investment in the Hedge Fund is suitable for the investor in light
of the investor’s investment objectives, financial circumstances and
tax situation.
All performance information is believed
to be net of applicable fees unless otherwise specifically noted. No
representation is made that any fund will or is likely to achieve
its objectives or that any investor will or is likely to achieve
results comparable to those shown or will make any profit at all or
will be able to avoid incurring substantial losses. Past performance
is not necessarily indicative, and is no guarantee, of future
results.
The information on the Site is intended for
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an offer, or the solicitation of any offer, to buy or sell any
security or an endorsement or inducement to invest with any fund or
fund manager. No such offer or solicitation may be made prior to the
delivery of appropriate offering documents to qualified investors.
Before making any investment, you should thoroughly review the
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The information on this Site is as of the date(s) indicated,
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returns, valuations, fund targets and strategies, has been supplied
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Any indices and other financial benchmarks
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reflect reinvestment of income and dividends and do not reflect the
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index. Comparisons to indexes have limitations because indexes have
volatility and other material characteristics that may differ from a
particular hedge fund. For example, a hedge fund may typically hold
substantially fewer securities than are contained in an index.
Indices also may contain securities or types of securities that are
not comparable to those traded by a hedge fund. Therefore, a hedge
fund’s performance may differ substantially from the performance of
an index. Because of these differences, indexes should not be relied
upon as an accurate measure of comparison.
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