Hedge funds syllabus

THIS IS A DRAFT SYLLABUS SUBJECT TO REVISION PLEASE CHECK BACK PERIODICALLY FOR UPDATES AS OF MARCH 22, 2021 HARVARD MGMT-2784 ONLINE Hedge Funds: History, Strategies, and Practice (Online Live Web Conference) Course Syllabus – SUMMER 2021 Course Logistics • • • • Day and Time: [XXX and XXX 6:30PM – 9:30PM EST (GMT -4 & -5), online; starting [XXX] Recorded Lectures (in addition to live online sessions) Course site: on Canvas Web conference link will be provided by the school (Canvas/Zoom) About the Course Course Format PLEASE NOTE THIS IS AN ONLINE COURSE Students are expected to attend each weekly online session on XXX from 6:30-9:30pm EST unless notified differently -Course Description and Overview While beating the markets was long thought to be impossible, hedge funds have seemingly challenged many financial theories, cracked the mysteries of Wall Street, and made fortunes in the process They are also one of the fastest growing and least understood areas in the asset management industry What exactly are hedge funds? How has the sector developed? What hedge fund managers strive to capture and how they it? What are the major hedge fund strategies and their mechanics? What are their hidden-risks and unique limitations? How important are hedge funds to investors, regulators, and the public? What is it like to manage a hedge fund business? From both a theoretical and practical perspective, this course is geared to help answer these questions It surveys the hedge fund industry from its origins in the 1940s, and explores hedge fund strategies including long/short, event-driven, market neutral, relative value, dedicated short-bias, convertible arbitrage, emerging markets, fixed income arbitrage, global macro, managed futures, and multi-sector investing Students develop an understanding of how hedge fund managers—as well as hedge fund investors—think, operate, and invest We’ll also investigate trends affecting the industry To relate theories to current practice, weekly sessions will also feature a “Trade of the Week” with accompanying problem sets Weekly online session will also feature guest speakers from the finance industry While the course is not particularly quantitative, it does require a basic knowledge of math and finance, along with some modest competency in MS Excel and/or a financial calculator Prior classes or work experience in finance would also be useful Should you have concerns about your background, please contact one of the instructors before the class begins MGMT 2784 – Summer 2021 Page of Course Materials This course requires students to work continually throughout the spring term and entails a modest mix of video lectures, reading, calculations, writing, and discussion The readings vary each week – sometimes heavy, sometimes light Videos and readings should be complete before weekly online session class lectures Students may find the reading easier after watching the video lectures (recorded) To keep the class as fresh as possible, the reading list is generally supplemented by recent Wall Street research, all of which will be posted on the course website A few case studies will also be required for purchase, and PDFs of academic literature will be provided on the course website The following book is required and is also available in audiobook format Mallaby, Sebastian (2010) More Money than God: Hedge Funds and the Making of a New Elite Coursework/Assignments This is a graduate-level course and graduate-level work, which includes active participation in class discussions and activities and high-quality written work, is expected Much of an investment manager’s success depends on a mix of analysis and communication, therefore effective written and oral communication will constitute a significant portion of a student’s grade Written work should be clear, logical, grammatically correct, spell-checked, persuasive, supported by examples, and backed up by citations for any data, ideas or other content used It should represent the student’s best effort Class Participation Online sessions will focus on current market phenomena, a “trade of the week” discussion, readings, as well as problem sets to reinforce key concepts Therefore, students are expected to attend all class sessions, view recorded lectures, and complete all assigned readings and come prepared to participate Attendance will be taken, and participation will be evaluated at each class session Guest lectures will be scheduled during several live sessions An online discussion board will also be available for questions and comments Class participation will be graded more on quality than on quantity, so contributions should be relevant, concise and aimed at moving the discussion forward and driving toward insight and understanding You may miss one online class session without penalty, but all other absences will result in a zero score for class participation for that session Please notify the teaching assistant (via email) prior to the start of class if you will not be in attendance Evaluation and Deliverables This course includes a mix of individual and team deliverables Students will have five (5) graded deliverables: one team case presentations, three individual online quizzes, and one individual report Class participation is also weighted A student’s final grade in this course will be based on the following weightings: Assignment Team Assignment (Team Case Presentation) Individual Online Quizzes (3) Individual Report (Strategy Analysis) Class Participation (online discussions, presentations, etc.) Total • Weight 10% 45% 40% 5% 100% Assignments #1: Team Case Presentation Each team will be assigned a specific reading that will require a PowerPoint summary of key takeaways, a strategy example, and online presentation to the class for 20 minutes All individual team members are required to present during the MGMT 2784 – Summer 2021 Page of presentation Sixteen (16) yellow highlighted sections below are the presentation topics to be covered More details will be given in the first online session • Individual Online Quizzes Each student will be required to take online open-note quizzes consisting of approximately 15 multiple choice or true/false questions scheduled three times during the semester NO COLLBORATION IS ALLOWED ON THE INDIVIDUAL ONLINE QUIZZES • Individual Report Each student will be required to write a 1200-1500 word report based on questions provided mid-semester due the last week of the semester NO COLLBORATION IS ALLOWED ON THE INDIVIDUAL REPORT Grades reflect the quality of a student’s work submitted throughout the term according to the Harvard Summer School’s grading standards here: https://www.summer.harvard.edu/grades Your Instructors Dr Peter Marber Office Hours: By appointment Luis Miguel Echeverri, Teaching Assistant Email: pmarber@fas.harvard.edu Tel 857-488-8478 Email: echeverri@fas.harvard.edu PETER MARBER, PHD is a Wall Street veteran, professor, and writer focused on globalization and financial markets Since 1987, he has professionally managed billions of dollars for many of the world’s largest institutions An award-winning macro investor, Marber currently is Chief Investment Officer for emerging markets at Aperture Investors in New York He previously headed emerging markets for Loomis, Sayles & Co., and served as Chief Business Strategist and global head of emerging markets debt at HSBC Global Asset Management Before that, he was founding partner, President and Chief Investment Officer for The Atlantic Funds, which was acquired by HSBC in 2005 He started his career as an emerging markets trader at UBS Bank, and was founder and President of the emerging markets subsidiaries of Wasserstein, Perella & Company Marber has been a faculty member at Harvard since January 2014, and he received the J Fussa Award for Distinguished Teaching in 2017 In addition to Harvard, Dr Marber lectures in finance at the Carey School of Business at Johns Hopkins He has also directed the Global Economy program at NYU’s Center for Global Affairs, and taught at Columbia University for twenty years An author of 100+ articles, Marber has been quoted by CNN, CNBC, the Financial Times, Reuters, Bloomberg, and the Wall Street Journal He serves on boards and/or is a member of Chatham House, the Emerging Markets Trade Association, New America, the Royal Economic Society, and St John’s College, among other institutions Marber is also a fellow of the Royal Society of Arts He has published seven books including From Third World to World Class: The Future of Emerging Markets in the Global Economy (1998, 1999; Basic) Money Changes Everything: How Global Prosperity is Reshaping Our Needs, Values, and Lifestyles (2004, FT Prentice Hall); Seeing the Elephant: Understanding Globalization from Trunk to Tail (2009, John Wiley); Higher Education in the Global Age: Policy, Practice and Promise in Emerging Societies with (with Araya; 2013, Routledge); Brave New Math: Information, Globalization, and New Economic Thinking in the 21st Century (2015, World Policy); and The Evolution of Liberal Arts in the Global Age (with Araya; 2017, Routledge) His latest book is QUID PERICULUM? Measuring and Managing Political Risk in the Age of Uncertainty (with McKee; 2021, PRS) Dr Marber earned his bachelor’s from Johns Hopkins, master’s from Columbia, and doctorate from the University of Cambridge LUIS M ECHEVERRI has over 15 years of corporate experience He spent the first part of his career in the insurance industry, transitioning later into the energy and power sector He currently works at Enel, Italian multinational in the energy sector, where he holds the position of Sr Director of Insurance In this role, he leads the insurance unit and risk management of all the Enel business lines and renewable energy plants across the United States and Canada MGMT 2784 – Summer 2021 Page of Over his career Echeverri has accumulated hands-on experience in North America and Latin America, as well as in start-up, corporate, multinational, non-profit, academic, and board settings He earned his bachelor’s in Economics and International Business from ICESI University (Cali, Colombia) and his master’s degree in Management from Harvard University He was born and raised in Colombia and is bilingual Luis has been a Teaching Fellow at Harvard since January 2014, and also works with E1925 Emerging Markets, E1780 Disrupting Economics and E500 Strategic Management graduate courses Course Outline and Schedule Planned Classes (subject to change) Due before start of class: Student Financial Knowledge Survey (Link will be sent by instructors) WEEK – Module Intro and Lecture Videos Introduction to Hedge Funds • History and Development of the Industry • Academic Investment Theories and Hedge Fund Response • Introduction to Class Deliverables Pre-class Reading Harvard Business School (2010) “The Hedge Fund Industry,” 9-208-126 Mallaby, S., The Alpha Game, p 1-14 Mallaby, S., AW Jones, p 15-40 WEEK – Module Lecture Video Taxonomy of Broad Hedge Fund Philosophies and Strategies • Fundamental vs Technical Philosophies • Long/Short (including equity long/short, equity market neutral, long bias, short bias, variable bias) • Tactical Trading (including global macro, managed futures, trend strategies) • Relative Value (including arbitrage, statistical arbitrage, specialized credit, fixed income arbitrage, convertible) • Event Driven (including event driven, merger risk arbitrage, distressed, special situation, dedicated short) Financial Concepts Associated with Hedge Funds • Standard Deviation/Volatility • Correlation • Drawdown • Distribution of Returns (skewness, kurtosis) • Leverage • Risk Parity • Kelly Criterion • Efficient Frontier/Black-Litterman Pre-class Reading Darden Business Publishing (2003) Risk Exposure and Hedging UVA-QA-0595 (TEAM PRESENTS) Evestment (2012) Investment Statistics Guide Michael Steinhardt in Mallaby, p.40-61 (TEAM PRESENTS) Optional Academic Readings Asness, et al (2012).”Leverage Aversion and Risk Parity.” Financial Analysts Journal 68:1 Asness et al., (2001).”Do Hedge Funds Hedge?” Journal of Portfolio Management, Fall 2001; 28, Bocconi Investment Club “A Primer on Risk-Parity.” MGMT 2784 – Summer 2021 Page of Da Silva et al (2009) “The Black-Litterman Model For Active Portfolio Management,” Journal of Portfolio Management, Winter 2009, 35:2; 61-70 Idzorek, T (2005) “A Step-by-Step Guide to the Black-Litterman Model.” Ibbotson & Associates Mowery, K (2013) “Position Sizing Using the Kelly Growth Criterion.” Unpublished WEEK – Module Lecture Video Risk Statistics and Ratios for Hedge Funds • Standard Deviation (volatility) • Sharpe Ratio • Sortino Ratio • Drawdown • Value at Risk Long/Short Equity • Equity Factors Pre-class Reading Julian Robertson in Mallaby, p 109-129 (TEAM PRESENTS) Pappas, S & Dixon, C (2015) “Factor-based Investing.” Vanguard Research (PDF on Canvas) Blackstone Group (2016) “Taking Stock: Long/Short Hedge Funds and Equity Replacement.”(PDF on Canvas) Optional Academic Readings Fama & French (2007), “Dissecting Anomalies,” working paper Fama & French (1992), “The Cross-Section of Expected Stock Returns,” Journal of Finance, 47:2 427-465 Fama & French (1993), “Common Risk Factors in the Return on Stocks and Bonds,” Journal of Financial Economics, 33: 3-56 Garff, D (2013).” Multi-Style Global Equity Investing: A Statistical Study on Combining Fundamentals, Momentum, Risk and Valuation for Improved Performance Available at SSRN: https://ssrn.com/abstract=2367400 or http://dx.doi.org/10.2139/ssrn.2367400 Jegadeesh and Titman (1993), “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency,” Journal of Finance, 48:1; 65-91 WEEK – Module Lecture Video Tactical Trading: Global Macro • Decomposing Risk Premiums in Global Macro Pre-class Reading Commodities Corporation in Mallaby, p.62-83 (TEAM PRESENTS) George Soros in Mallaby, p.83-108 (TEAM PRESENTS) Goodbar, E (2012) “Global Macro Styles Examined.” Investment Insights, Mellon Capital Geoquant White Paper (PDF on Canvas) Geoquant - Covid-19 (2020) (PDF on Canvas) State Street (2020) – Alternative Data (PDF on Canvas) WEEK – Module Lecture Video Tactical Trading: Global Macro (Cont’d) • Carry Trading • FX-focused Global Macro Strategies Pre-class Readings Paul Tudor Jones in Mallaby, p 130-146 (TEAM PRESENTS) Stanley Druckenmiller in Mallaby, p 147-171 (TEAM PRESENTS) Drobny, S Inside the House of Money, xi -70 (PDF on Canvas) MGMT 2784 – Summer 2021 Page of WEEK – Module Lecture Video Global Macro Wrap-up/Intro to Relative Value 1994 Crisis in Mallaby, p 172-191 (TEAM PRESENTS) Long Term Capital, Mallaby, p 220-247 (TEAM PRESENTS) Individual Online Quiz #1 WEEK – Module Intro to Technical Trading Video Lecture Link Pre-class Readings: Dot.Com Bubble, Mallaby, p 248-284 (TEAM 10 PRESENTS) Codebreakers, Mallaby, p 285-306 (TEAM 11 PRESENTS) JP Morgan (2015) “Momentum Strategies Across Asset Classes: Risk Factor Approach to Trend Following” Optional Academic Readings Dow Theory Forecasts (2015) The Dow Theory Faith, C (2002) The Original Turtle Rules Marber, B (2007) Marber on Markets: How to make money from charts WEEK – Module Video Lecture – Event-Driven Strategies Video Lecture – Metalastan and Restructuring Event-Driven Strategies • Merger Arbitrage (Cash, Stock Swap, Hybrid) • Distressed Strategies Pre-Class Readings Yale Men in Mallaby, p 265-284 (TEAM 12 PRESENTS) WEEK – Module Running a Hedge Fund Business Pre-class Readings: Battilana, J & Kaplan, R (2007) “Leslie Brinkman at Versutia Capital,” Harvard Business School, 9-407-089 (TEAM 13 PRESENTS) WEEK – Module The Hedge Fund Industry Online Quiz #2 Pre-Class Readings: Harvard Business School (2013) “Blackstone Alternative Asset Management.” 9-213-129 (TEAM 14 PRESENTS) ProShares Hedge Replication ETF (PDF on Canvas) WEEK – Module Video Lecture – Relative Value Relative Value Strategies • Fixed Income Arbitrage, Statistical Arbitrage, Convertible Arbitrage, Pair Trades Pre-Class Reading: MGMT 2784 – Summer 2021 Page of Darden Business Publishing (2015) “CalPERS Alternative Return Strategies: Hedge Fund Risk and Return.” UVA-F-1735 (TEAM 15 PRESENTS) WEEK – Module Video Lecture – Multistrategy/Fund-of-Funds Pre-Class Readings Amaranth, in Mallaby, p 322 -347 WEEK – Module Frauds Pre-Class Readings Collins, B “Bernie Madoff’s Ponzi Scheme: Reliable Returns from a Trustworthy Financial Adviser.“ Working paper; Securities Exchange Commission (TEAM PRESENTS) Individual Online Quiz #3 WEEK 7– Module Diversity and the Hedge Fund Industry The Future of Hedge Funds Class-wrap up Individual Report Due – (final date TBD) Pre-Class Readings Assorted articles to be provided in PDF form Other Important Information Accessibility The Summer School is committed to providing an accessible academic community The Accessibility Office offers a variety of accommodations and services to students with documented disabilities Please visit http://www.summer.harvard.edu/resources- policies/accessibility-services for more information Academic Integrity You are responsible for understanding Harvard Summer School policies on academic integrity (http://www.summer.harvard.edu/policies/student-responsibilities) and how to use sources responsibly Not knowing the rules, misunderstanding the rules, running out of time, submitting the wrong draft, or being overwhelmed with multiple demands are not acceptable excuses To support your learning about academic citation rules, please visit the Resources to Support Academic Integrity (http://www.summer.harvard.edu/resources-policies/resources-support-academic-integrity) where you will find links to the Harvard Guide to Using Sources (https://usingsources.fas.harvard.edu) and two free online 15-minute tutorials to test your knowledge of academic citation policy The tutorials are anonymous open-learning tools The Fine Print Workload The value you receive from this course will be commensurate with the thought and effort that you put into the endeavor Students should expect to spend approximately hours outside of class each week to view the video lectures first, then read the assigned materials, reflect, and prepare for the next class session On Time Students are expected to arrive to the online classroom on time and stay for the duration of the class session If you expect to be late or absent from class – or need to leave early – let the instructors know prior to the start of class MGMT 2784 – Summer 2021 Page of Deadlines All assignments must be submitted to the correct assignment drop box on the course website at the specified day and time and late submissions will not be accepted Should you experience any internet problems, please call/leave a message for the instructor – this call should occur before the submission deadline passes If you are absent the day an assignment is due, the assignment is still due at the specified day and time True medical or family emergencies will be dealt with on a case-by-case basis Professional Conduct Professional behavior is expected throughout the class This means respectful communication both inside and outside of class During discussions, civil discourse should be maintained at all times and comments should be aimed at moving the discussion forward This does not mean that students must always agree with others since reasoned, respectful dissention may be part of the discovery process and lead to previously unconsidered options MGMT 2784 – Summer 2021 Page of ... WEEK – Module Intro and Lecture Videos Introduction to Hedge Funds • History and Development of the Industry • Academic Investment Theories and Hedge Fund Response • Introduction to Class Deliverables... (2012).”Leverage Aversion and Risk Parity.” Financial Analysts Journal 68:1 Asness et al., (2001).”Do Hedge Funds Hedge? ” Journal of Portfolio Management, Fall 2001; 28, Bocconi Investment Club “A Primer... (TEAM PRESENTS) Individual Online Quiz #3 WEEK 7– Module Diversity and the Hedge Fund Industry The Future of Hedge Funds Class-wrap up Individual Report Due – (final date TBD) Pre-Class Readings