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    Hedge Fund

    The hedge fund industry has survived the crisis of 2008 and has performed very well within the COVID-19 pandemic period. HF managers have now positioned themselves in the low-interest environment. Many AIFM’s have adapted their strategy, sometimes their fee schedule, and many investors have adapted their return expectations.

    The future of the hedge funds are more and more dependent on high-frequency trading, artificial intelligence-driven, not only in finding new trades but also adapting new strategies to the ever-changing environment can select from a variety of different structures suited to their needs.

    Luxembourg is a leading European center for alternative investment funds and a strong position for hedge funds

     

    What are the key strategies for a hedge fund?:
    • Credit: This type of strategy targets credit of companies by quality or relative value rather than their interest rate
    • Event-driven: This strategy focuses on exploiting pricing inefficiencies that may occur before or after a company event, such as an acquisition, bankruptcy, merger, and more.
    • Fixed-Income Arbitrage:  It looks at the returns from risk-free government bond and to reduce or eliminate credit risk by using high leverage.
    • Global macro: This strategy consists of taking short or long positions based on macroeconomics trends and their influence on interest rates, currencies, commodities, or equities.
    • Long/short Equity: This strategy involves the investment into both aspect of equity position (short & long investing) and focuses on reducing the market risk by the short positions offsetting long market exposure.
    • Market neutral: It specifically targets zero net-market exposure.
    • Merger Arbitrage: This strategy is similar to market neutral but takes into consideration event-driven elements such as mergers and acquisitions.
    • Quantitative: This type of strategy revolves around quantitative analysis to make investment decisions
    • Short-Only: It looks for overvalue equities and purely use short-selling
    By hedge funds, we mean Undertakings for Collective Investment that:
    • Follow an alternative investment strategy
    • Use short selling, derivative products and high levels of gearing
    • Seek absolute performance rather than measuring their performance against an index
    • Apply a performance fee in addition to the management fee that is based on assets under management
    • Offer the fund managers much greater liberty to modify their strategy
    • Use usually a prime broker which, in addition to asset custody, offers order execution, clearing, and financing services

    The Special Limited Partnership constitutes a perfect fit for a hedge fund structure due to its contractual and flexibility aspect. It is very similar to classic hedge funds commonly known as offshore funds.

    Over the last months, many HF promoters and HF managers of offshore structures have decided to relocate their fund to Luxembourg, the main reason for this change being the shift in investors behaviour, change in the tax legislation, and other regulatory aspects.

    Investors are more and more willing to invest in onshore, transparent, tax compliant structures that Luxembourg offers.

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