KindLy answer the questions below:
Qn 1. Stella Wambua is conducting due diligence on a hedge a hedge fund for a pension fund.She gathers the following information relating to the structure of the fund:
1.The fund employs three people-two principals;Samuel Mulati and John Omulundo,and an administrative assistant.Samuel Mulati's prior work experience is 10 years as an equity analyst at Jeremy Investment Bank and prior to that as an associate at a Law firm.He holds Bachelor of Business Administration (BBA) and Bachelor of Laws (LLB) degrees.
2. John Omulundo worked for three years as an equity fund manager at a medium size mutual fund. Prior to that, he was a corporate finance associate at a startup investment bank. 3. The principals are employed on contract basis. 4. The fund's relationship with its prime broker extends back two years. The fund has used only one prime broker since it was formed. The prime broker is a prestigious firm ranked number two by rating agencies in the brokerage business. Hedge fund strategy: . The fund invests in both fixed income and equities markets. The fund buys 10-year Treasury note and borrows short-term loans abroad in markets that have particularly low interest rates to earn, currently, a positive spread. . The fund conducts merger arbitrage involving the securities of the target and acquirer. Legal strategy: The fund has a 1 and 20 fee structure and a two-year lock-up period. Required: Based on the above information, analyses four risk factors associated with this hedge fund investment.b) Jabavu Investments Services (JIS) operates as a hedge fund with an initial capital of Sh.350 billion. JIS charges a 3.2 per cent management fee based on assets under management at the end of the year. JIS also charges a 32 percent incentive fee based on returns which are beyond a 10.2 percent hurdle rate. In its first year, JIS hedge fund appreciates by 17.2 per cent. JIS calculates its management fee using end-of-period valuation. Required: The investors net return. (Assume that the performance fee is calculated net of management fee).a) Discuss the following equity hedge fund strategies: i. Market neutral strategy. Sector specific strategy. Fundamental growth strategy. civ. Quantitative directional strategy. V . Short bias strategy. b) Representativeness is the key aspect of hedge fund databases and indices. The representativeness of a sample is the extent to which the characteristics of that sample are simple to the characteristics of the universe. If the sample constantly favours inclusion of observations based on a particular characteristic, the sample is biased in favor of that characteristic. Required: Based on the aforementioned statement, assess the following data biases associated with hedge , fund databases: i. Survivorship bias. ii. Selection bias. fil. Instant history bias/backfill bias. IV . Liquidation bias
