Hedge funds are privately held investments that use resources pooled together from investors to capture a particular market segment that offers high returns. Investors are therefore required to commit their monies for a minimum period after which they can redeem their investments. These funds are aggressively managed and are only open to select investors with a minimum set net worth.
The original purpose of creating hedge funds was to capture equity securities investments and to utilize leverage and short selling to monitor the movements of the equity market. This purpose has however been overridden to accommodate other investments that can offer higher returns. Aggressive managers observe the market trends and make speculative investments that at times carry a bigger risk to that of the overall market.
Hedge fund strategies
Their approach to the market structure can take any of the following forms:
- Short selling
Short selling commonly referred to as shorting is a strategy whereby stocks that are not in use are sold and then bought later at a discounted price thereby making real returns. Only a few hedge fund managers can be entrusted with this high-risk venture.
- Equity market neutral
This is an asset stock-picking with the aim of hedging against volatility in the market using the long-short method. The hedge-manager can buy one stock and, on the other hand, short another stock in the same asset class. Regardless of the performance of the individual markets, the investors will still make some money from the investment.
- Market neutral arbitrage
This technique exploits the imbalances in the pricing of different securities. For instance, a manager may short sell a company’s stock and still buy the same companies bond.
- Merger arbitrage
Merger arbitrage focuses on the companies on the verge of an amalgamation. For instance when a corporation Y announces that it is buying company Z at $100 per share, the stock price for company Z will rise by a margin let’s say at $105 by share. The difference between the two stocks is called the spread. A hedge manager can use this chance to make a short term profit from the spread.
- Convertible arbitrage
It’s a corporate bond that is redeemed for a company stock in the future. The price of this bond can fall when the credit ratings fall or when the interest rates shoot up. Profit is achieved from the difference between the price of the bond and the stock it can be redeemed for.
Hedge funds are like a double bladed sword. When you make the right bet, then you are sure to smile all the way to the bank. If you are not lucky, then your lifetime savings can be swept with the speed of the lightning. In the 1990’s, Manhattan investment fund clearing through Bear Stearns lost close to $400 million of their investors assets. The firm, however, collapsed in the 2000s having made $2.4 million and with losses of up to $160 million which the court ordered they should pay.
Dell Inc. has been rather busy this year when it comes to acquisitions in this 2013 fiscal year, which began in February of 2012. Having already purchased AppAssure Software Inc., SonicWall Inc., Wyse Technology Inc., Make Technologies, and Clerity Solutions Inc.
Deal number six comes with the closing of a $2.4 billion acquisition of Quest Software, Inc. and investor reactions were not of a positive note. Dell has already seen a decline in their stock of 31 percent for the year. The purchase of the California-based company came only three short months after Dell agreed to buy it, although the month of July had been a month-long bidding war.
In the end, with the bidding war sending the acquisition price to $28 per share, Dell officials believe Quest Software has just the type of data management, protection package and server management that they’d like to be able to offer their customers.
Dell ranks number three in the world of computers and employs approximately 12,000 people in Texas. In an effort to move up in the ranks, the computer manufacturer is looking to expand it’s offering to a full service technology company.
Earlier acquisitions this year were also geared at changing the face of Dell, which is apparent from previous acquisitions this year. Make Technologies, for example, provides cloud-based systems which would upgrade potential clients who were still using conventional applications. This acquisition alone allows them to diversify in areas such as higher margin storage, software and services.
The new business plan and acquisitions have already increased the number of Dell employees by 1850 workers. There has been a shortfall however as August numbers reported an 18 percent decline in their second-quarter profit on revenue from the same quarter of the previous year.
The Austin Business Journal has fantastic news for the Lone Star State, and Austin is a gem in the midst of it all. Acquisitions and mergers are booming at 25 deals that exceed $1.8 million each last year. The top deal totaled $4.88 billion.
In the top five M&A deals, there was investments totaling $5.53 billion. Four of those deals closed in June of 2011. Although not listed in the top five, there were two other acquisitions that closed in 2011. Both were purchased by Austin-based Convio Inc. It bought Kansas-based StrategicOne for $6 million and U.K.-based Baigent Ltd. for $3.3 million. A full list of M&A’s can be found in the July 6th print issue of the Journal.
Texas wasn’t just in the news for mergers and acquisitions, though. There are definite in-roads being made in the way of manufacturing in our great state as well.
In June of this year, there are positive readings in the expansion of factory activity, rising from 5.5 to 15.5 in the production index. The production index is a key measure of state manufacturing conditions and we showed the strongest reading since spring of 2011.
There was also a new orders index that rose to 7.9 after having had three previous readings around zero. This indicates that we are in a growth trend since staying flat between February and June.
If that weren’t enough, the perception of broader economic conditions improved in June. While April and May proved negative in the general business activity index, by June, we were moving into positive territory.
Texas produces more than 9 percent of total manufactured goods in the United States. We rank just behind California in factory production.