SKILL.md
Alternatives
Core Concepts
Hedge Fund Strategies
- Long/Short Equity: Combines long positions in undervalued stocks with short positions in overvalued stocks. Net exposure can range from net long to market neutral.
- Market Neutral: Targets zero beta to the market. Returns driven by stock selection alpha, not market direction.
- Global Macro: Takes positions in currencies, rates, equities, and commodities based on macroeconomic views. Highly discretionary.
- Event-Driven: Profits from corporate events — mergers (merger arbitrage), restructurings, spinoffs, bankruptcies.
- Relative Value: Exploits pricing discrepancies between related securities (convertible arbitrage, fixed income arbitrage, capital structure arbitrage).
- Managed Futures/CTA: Systematic trend-following strategies across futures markets. Historically provide positive convexity (perform well in crises).
Fee Structures
The standard hedge fund fee is "2-and-20" — 2% annual management fee on AUM plus 20% performance fee on profits.
- High-water mark: Performance fees are only charged on new profits above the previous peak NAV. Protects investors from paying fees to recover losses.
- Hurdle rate: A minimum return (often a risk-free rate) that must be exceeded before performance fees apply.
- Clawback: Mechanism to recover performance fees if subsequent losses erode earlier gains (more common in PE).