Hedging funds as instruments of risk avoidance and corporate value growth

Abstract

There are five possible drivers of shareholders' value growth according to the theory of G.Arnold: increasing of the return on existing capital; raising investment in positive performance spread business units; divesting assets from negative performance spread units to release capital for more productive use; extending the planning horizon (competitive advantage period); decreasing the required rate of return. Active development on the international markets new investment institutes, such as hedging funds, gives companies unique opportunity to increase rate of return on existing capital by investing into hedging funds. Such investments give opportunity to increase shareholders; value. But investment of assets into hedging funds assumes higher return as compared with investments into traditional institutes. This condition stimulates necessity of detailed analysis of hedging funds nature and inherent risks. This paper deals with analysis of peculiarities of hedging funds activities and of their ability to generate acceptable rate of return out of dependence from such traditional indicators as economic growth, interest rate, and exchange rates volatility. Problem of detecting of specific risks appropriated to hedging funds is concerned in this paper also.