Dynamis Fund case study Essay

Compared to several(prenominal) portfolios, such investment firms woo investors by ecstasying several advantages videlicet professional asset/ bullion management, liquidity and more diversification than well-nigh individuals put forward create or afford in a individualized portfolio. The securities firms motivation in recommending heftiness investments can be explained by the high consignment that could be earned. Hedge entrepots take down a fee for assets under management and incentive fees based on a certain percentage of the doughs earned. With good stock picking, the brokerage firm would be able to earn profits in both up and down marts.A regional broker would want to offer beleaguer gillyflowers because they are exclusively lightly regulated and thus the monetary fund directors can use more advanced investment strategies such as a leveraged and derivatives aspects. It is stated in their change memorandum that their mission is to rap investment opportuniti es in publicly traded companies in the button sector. Hence, the fund seeks to bear above sightly returns relative to both S&P pushing composite and the broader market through a variety of investmentinstruments. Also, the funds use of various strategies allow for be designed to smirch bump while maximizing potential return, again increasing the commission that could be paid to the put off fund managers. This potentially high aim of compensation helps the brokerage retain talented brokers and specialists, raising the reputation of the firm. Furthermore, investiture in dynamism property serves as a diversification tool. This is because from historic records, energy prices have had a high correlation with inflation.In time of rising inflation, energy property have been found to perform remedy than the market. Thus, they are able to act as a source of risk diversification. This explains the presence of a market for such energy funds. 1 In addition, energy funds have been a very popular fund with investors. The high dependence on oil in all separate of the world has made energy stocks a dodge for emerging market portfolios. With a demand for such energy stocks, a regional brokerage will want to cash in on this opportunity and offer energy funds.In order to cater to a larger multitude of investors, the brokerage firm will offer energy hedge funds to sophisticated investors and energy mutual fund to general public who will like to invest in energy fund, but are unavailing to do so given their smaller amount of capital. Investing in energy funds is often complicated and risky, given the volatility of such commodities. Brokerage firms have a fiduciary responsibility to research on such funds before recommending them to their clients. They have to ascertain if the investments are fitting for the clients based on their age, investment experience and tolerance for risk.In take hold of of this, investors prefer a firm that can provide them with personal ized work suited to their needs and risk tolerances. To be able to get these works, most(prenominal) of these investors go to regional brokerage firms. Such regional brokerages can press home the attention to their clients due to their small size. Thus, with such demand in energy funds, regional brokerage firms would be able to make a profit out of offering such instruments. It will allow them to better position themselves in the market. 2.Why did S&S start a hedge fund in addition to its energy portfolio The Energy portfolio is essentially a long equity fund for investors to buy stocks. It is stated that in their selling memorandum that the Energy Portfolio will seek to earn above average returns by investing in smaller and medium-size companies that are growing earnings and cash flow in a dramatic way. in that locationfore, it can only stand to gain when the market goes up. On the other hand, the introduction of the hedge fund will provide benefits to both its investors and t he fund manager in the following ways 2For the investors, the hedge fund acts as a better investment for reaping returns in both bull and bear markets by having both long and short positions. Also, hedge funds are lightly regulated as compared to mutual funds and thus the fund managers can pursue more advanced and a wider range of strategies including leverages, derivatives, short sales, options and futures contracts. The tractability in managing the hedge funds allows fund managers to exploit opportunities within the energy sector. The potentially higher returns attract investors with higher risk tolerance.Hedge funds cater to sophisticated investors who earn a minimum amount of money annually and have a certain amount of net worth, on with investment knowledge. It helps to cater to the needs of the sophisticated investors and target a easily different market from the mutual funds. This is in line with S&Ss corporate strategy of providing the best possible service to its sell c ustomers and continuing to grow the asset management business. As for the fund managers, a hedge fund provides a radically different incentive piece of ground than the typical mutual fund.The fees paid by investors are higher as compared to that for mutual funds, including additional fees that mutual funds do not charge. There are no restrictions on the fees a hedge fund manager can charge, as compared to mutual fund fees which are regulated and transparent. The energy hedge fund charges a 1% management fee, which is for the same service that the management fee covers in mutual funds. This fee alone may form a substantial part of the fund managers profit, thus making the management of the hedge fund attractive to the fund manager.