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Abstract:
This document affronts the issue of financial leverage in Hedge Funds, with a different approach than that which currently appears in the literature about this subject. Financial Leverage is not considered a risk factor (equal to other traditional market risk factors) through which we can explain the performance and volatility of single Hedge Funds. With a point of view related to traditional balances sought after by corporate financing, Financial Leverage is examined as a decisional variable of the manager, and as a source of risk for the financier, evaluating the impact on the efficiency of the strategy for the investor (the shareholder).

This document takes its starting point from the distinction between the business risk of the strategy and the financial risk of the strategy, observing the impact of the use of leverage on the risk adjusted performance. Financial Leverage seems to have a large responsibility in contributing to systemic crises. Given the business risk of the strategy, it is possible to determine the maximum level of Financial Leverage that the strategy is able to support ex ante. This may be done empirically, based on historic series of Hedge Fund indices and theoretically by using the Merton Model.

hedge funds, financial leverage, risk adjusted performance

Abstract:
This paper is a first contribution to a relevant topic which is both theoretical and practical at the same time. Italian financial intermediaries are now obliged to find urgent solutions: in a very short time they have to invest huge sums to implement MIFID compliant procedures and behaviours. Banks must define strategic guidelines about their competitive position, searching for solid economic equilibrium in the short and in the long run. This is necessary in a rough time for the financial industry, most especially (in Italy) the asset management industry. The compliance culture requested by the Bank of Italy implies a big change in the service model for investment advice. The strategy of the Italian banks seems oriented toward implementing a widely diffused investment advice service. Every client relationship must became an investment advice relationship. This solution is the preferred CONSOB solution. But ironically - in my opinion - this solution is hardly a compliant one. Actually the amount of money that banks have to invest to implement a MIFID-compliant information system is tremendous and the results appear to be greatly uncertain. This has lead toward weak procedures in collecting and elaborating the necessary client information. And as a consequence, to a very thin compliance with the MIFID investment advice directives.

MIFID,Compliance,Financial Advising

Abstract:
This paper studies the Performances of Italian Fund of Hedge Funds (FoHFit), in comparison with those of Italian Funds of Mutual Funds (FoFit) and of a sample of European Funds of Hedge Funds (FoHFeu). The first objective is to build a methodology able to both deal with a limited number of data referred to a specific period of time and to obtain a judgment about the value added to investors by the FoHFit Industry. The judgment will be supported by the comparison of the results of actual competitors (the Italian Funds of Funds) and of virtual competitors (the European Funds of Hedge Funds) in the same financial environment. The comparison between the young Italian Hedge Fund Industry and the European Hedge Fund Industry will be particularly significant to delineate sensitive improvement points. The general methodology adopted follows four phases:

* Defining the financial environment in which the Fund Managers performed their activity
* Selecting a sample of Funds for each group (FoHFit, FoHFeu and FoFit) that was able to add value in the defined financial environment
* Performing a risk/rewards analysis of these value added funds
* Realizing a performance analysis of these funds to determine which risk factors and which strategies best explain the results of these value added funds

Hedge Funds, Fund of Hedge Funds, Italian Hedge Fund Industry

Abstract:
A recent research by Casey, Quirk and Acito and The Bank of New York points out that there are two "Pressures" on the traditional long only portfolio manager. The first is the alpha pressure, which tends to move assets from relative return to absolute return portfolios, in search of the informative advantage without the burden of the benchmark. The second is the beta pressure which tends to move assets towards an index investing philosophy, in search of risk premium for (almost) free. But are we dreaming? Is it possible to generate systematic Non-Relative Return absolute return) that outperforms the free risk rate with a coherent level of risk exposure? The empirical evidence about hedge funds performance (largely highlighted by the hedge funds industry) can be impressive for some strategies if we use long term index of hedge funds (see Ineichen 2003). But, this evidence does not answer the question properly. The quality of the data and the variance between the performance of the components of the index cause a high degree of uncertainty in interpreting the results (but see the outcomes in Ding and Shawky 2005), although the increase of assets under management is a fact (see IMF April 2004). In this paper I propose a very simple simulation method to evaluate the effects of different level of skill in implementing different Non-Relative Return investment portfolio strategies.

Absolute returns, Hedge Funds, Non-Relative Returns, Relative Returns