Examination of the Fees and Performance Structure of Long/Short Equity Hedge Funds

Download or read book Examination of the Fees and Performance Structure of Long/Short Equity Hedge Funds written by Michel Guirguis and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This article aims at testing empirically the major building blocks that affect the performance of long/short equity hedge funds: incentive fees, management fees, size, age, hurdle rate, high watermark provision and lockup period. The hedge fund primarily goal is to invest in long and short position of the security to take advantage from increase or decrease of the prices. Thus, he/she buys a security that is expected to rise and sell a security that is expected to fall. In other words, the hedge fund manager buys an undervalued share and sells an overvalued share. The main purpose is to minimize the market exposure and profit from the spread of a long/ short strategy between the shares. The net exposure should outweigh the long versus the short position or vice versa. The risk is still high because the market could move sharply in one direction and affect negatively the investment in the opposite direction. For example, if you invest 250,000 USD in a long position and 500,000 USD in a short position, the difference due to beta of the market direction could affect positively or negatively the entire investment. The fund manager could also use equity futures and options for small and large capitalization companies or blue chips companies. The sample is provided from Data Feeder dataset. It is very comprehensive and includes long/short equity hedge funds for the period 1998 to 2003. There are other factors that could contribute to performance persistence such as lock-up periods, hurdle rate and high water mark. We are going to use a probit binary regression equation to test the factors that create performance persistence.