CFA L1 / Alts / M6. Hedge Funds
Module 6 · Alternative Investments

Hedge Funds

EN: Hedge fund strategies, fee structures, and key risks.
VN: Chiến lược hedge fund, cấu trúc phí, rủi ro chính.

1. Strategy Categories Concept

  • Equity hedge Long/short equity, market neutral, dedicated short.
  • Event-driven Merger arbitrage, distressed, activist, special situations.
  • Relative value Fixed-income arbitrage, convertible arbitrage, volatility.
  • Macro / CTA Discretionary macro, systematic / managed-futures.
  • Multi-strategy Combine multiple approaches.

2. Fee Mechanics Concept

  • 2 and 20 Most common — 2% mgmt + 20% performance.
  • Hurdle rate Soft (carry on full profit if exceeded) vs hard (carry only on profits ABOVE hurdle).
  • High-water mark Performance fee only on net new highs.

3. Operational Considerations Concept

  • Lock-up Initial period before redemptions allowed (1–3 years).
  • Notice period Advance redemption notice (30–90 days).
  • Side pockets Illiquid positions ring-fenced from main fund NAV.
  • Gates Limit on fraction of fund redeemable per period.

Practice problem Practice

Practice problem

A fund profits from the spread between an acquirer's stock and a target's stock following a deal announcement. Which strategy?

Show solution
Event-driven: focused on corporate events.
Specifically: merger/risk arbitrage.
Event-driven — merger arbitrage