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Extensions for Windows: Module erweitern System
Vor einigen Tagen sorgte ein YouTube-Video für Aufsehen, das angeblich eine Reihe neuer Funktionen und Anwendungen zeigte, die Teil des Vista-Nachfolgers Windows "7" werden sollen. Nachdem darüber im Netz... (weiter lesen)
Avast! HE 4.8.1201 - Gratis AntiVirus auch für Vista
Die avast! Home Edition ist ein vollwertiger Virenscanner, der sowohl den Dateizugriff, den Mail- als auch den gesamten HTTP- und NNTP- (Usenet) Datenverkehr überwacht. Dank der einfachen Bedienung ist das... (weiter lesen)
ProgDVB 4.90.6 Final - Radio & Fernsehen über DVB
ProgDVB ist ein Tool um TV und Radio von einer DVB-Karte zu betrachten bzw. zu hören und aufzuzeichnen, sowie das Eingangssignal über das LAN zu streamen. Voraussetzung ist eine DVB-S- oder DVB-T-Karte mit... (weiter lesen)
xpy 0.10 - Open-Source System-Konfigurations-Tool
Die Entwickler von xpy haben eine neue Version veröffentlicht, sie trägt die Versionsnummer 0.10. Mit dem Freeware-Tool xpy ist es möglich, ähnlich wie mit xp-AntiSpy, bestimmte Funktionen im Betriebssystem... (weiter lesen)
Verbraucherzentrale: Vorsicht bei eBay-Portokosten
Nutzer der Auktionsplattform eBay sollten bei der Suche nach Produkten besonders auf die Versandkosten achten. Das empfiehlt die Verbraucherzentrale Nordrhein-Westfalen, die mit Stichproben bei 100... (weiter lesen)
Verbraucherzentrale: Vorsicht bei eBay-Versandkosten
Nutzer der Auktionsplattform eBay sollten bei der Suche nach Produkten besonders auf die Versandkosten achten. Das empfiehlt die Verbraucherzentrale Nordrhein-Westfalen, die mit Stichproben bei 100... (weiter lesen)
200.000 Unterzeichner fordern Erhalt Windows XPs
Mehr als 200.000 Unterzeichner beteiligen sich inzwischen an einer Petition an den Software-Konzern Microsoft. Sie fordern das Unternehmen auf, den Verkauf des Betriebssystems Windows XP auch über den bisher... (weiter lesen)
EU meldet Bedenken gegen Googles Street View an
Die Europäische Union hat Bedenken gegen das Street View-Feature in Googles Stadtkarten-Diensten angemeldet. Dieses könnte gegen die EU-Gesetzgebung zum Datenschutz verstoßen. Vor allem die Abbildung von... (weiter lesen)
Microsoft: OpenOffice.org ist keine Gefahr für uns
Der Markt für Büro-Software wird sich durch die verstärkte Präsenz von Open Source-Anwendungen nicht bedeutend ändern. Dieser Ansicht ist Stephen Elop, der als neuer Chef der Microsoft Business Division vor... (weiter lesen)
Mono-Projekt veröffentlicht freien Silverlight-Klon
Das Open Source-Projekt Mono hat das erste Release von Moonlight veröffentlicht. Dabei handelt es sich um eine Open Source-Implementierung von Microsofts Flash-Konkurrenten Silverlight. Die Entwicklung wird... (weiter lesen)
Google übersetzt nun in zehn weitere Sprachen
Der Suchmaschinenbetreiber Google hat seine Übersetzungs-Funktion erweitert. Das Tool kann nun mit zehn weiteren Sprachen arbeiten. Die Gesamtzahl der verfügbaren Idiome liegt damit bei 23, teilte das... (weiter lesen)
XP SP3: Hilfe gegen Dauer-Reboot bei AMD-PCs naht
Nach der Veröffentlichung des Windows XP Service Pack 3 meldeten die Besitzer von Fertig-PCs des Herstellers Hewlett-Packard ständige Neustarts, weil ein Bluescreen auftritt. Hintergrund ist ein Fehler, in der... (weiter lesen)
Preiswerte Panorama-Fotos mit Gigapixel-Auflösung
Ingenieure der Carnegie Mellon University haben ein System entwickelt, mit dem relativ preiswert Fotos mit Auflösungen im Gigapixel-Bereich aufgenommen werden können. Bei dem "Gigapan" handelt es sich um einen... (weiter lesen)
Fujitsus Glaskugel: PC 2033 eine Million Mal schneller
Der Computerhersteller Fujitsu-Siemens geht davon aus, dass die Leistung unserer PCs innerhalb des nächsten Vierteljahrhunderts eine Million Mal so hoch sein wird, wenn die aktuelle Geschwindigkeit des... (weiter lesen)
Forscher: OLEDs streicht man zukünftig an die Wand
Entwickler in Japan arbeiten derzeit an neuen OLED-Technologien. Zukünftig sollen Displays aus einer streichbaren Masse gefertigt werden können. Die Arbeit bei Mitsubishi Chemical und Sumitomo Chemical würde... (weiter lesen)
Wenig Interesse an Entwicklung von Vista-Software
Nach Angaben des US-Marktforschungsunternehmens Evans Data ist die Zahl der Entwickler, die an Programmen für Windows Vista arbeiten, auch über ein Jahr nach der Markteinführung noch verhältnismäßig gering.... (weiter lesen)
US-Fernsehsender CBS will Webportal Cnet kaufen
Dass der US-amerikanische Fernsehsender CBS seine Präsenz im Web verstärken will, ist spätestens seit der Übernahme des Musik-Streaming-Dienstes LastFM kein Geheimnis mehr. Jetzt bietet das Unternehmen rund... (weiter lesen)
VIA: "Isaiah" läutet Einstieg in den Massenmarkt ein
Fast schon traditionell wird der Markt für PC-Prozessoren seit Jahren von AMD und vor allem Intel dominiert. Daneben konnte kaum ein Hersteller überleben. Über die Jahre kamen und gingen die Konkurrenten,... (weiter lesen)
VeriSign: Patent für falsch eingegebene Webadressen
Das Unternehmen VeriSign hat kürzlich ein Patent zugesprochen bekommen, das die Behandlung von falsch eingegebenen Webadressen beinhaltet. Bereits im Jahr 2003 sorgte VeriSign mit dem so genannten "Site... (weiter lesen)
PS3: Direkter YouTube-Upload von Gameplay-Videos
Die Spielekonsole Playstation 3 von Sony erhält eine Funktion, mit der Anwender Videos direkt auf die YouTube-Plattform laden können. Nutzern soll es sich erleichtert werden, selbst aufgenommene Filme über das... (weiter lesen)
Radeon 4800 vs. GeForce GTX 200: Der Juni wird heiß
Der Wettstreit unter den beiden großen Grafikchiphersteller AMD/ATI und Nvidia wird voraussichtlich im Juni in eine neue Runde gehen. Nach Angaben des taiwanischen Branchendienstes DigiTimes wollen die... (weiter lesen)
Überproduktion: LCD-TVs vor deutlichem Preissturz
Die Preise für LCD-Monitore und -Fernseher könnten in Kürze deutlich sinken. Hintergrund ist eine Überproduktion, die sich mit zusätzlichen Investitionen in die Produktionsstätten noch verstärken könne. Die... (weiter lesen)
Safari wegen fehlender Download-Abfrage unsicher?
Wer den Apple-Browser Safari einsetzt, holt sich möglicherweise unbeabsichtigt Schadsoftware auf den Rechner, weil beim Starten eines Downloads keine Nachfrage erfolgt. Vor diesem Szenario warnt derzeit der... (weiter lesen)
Kurios: 'Verrückte Ameisen' legen in Texas PCs lahm
Der Südwesten der USA wird derzeit von einer Ameisenplage heimgesucht. Die Tiere sind vielerorts selbst an den ungewöhnlichsten Stellen zu finden. Besonders problematisch ist ihre Vorliebe für elektrische... (weiter lesen)
Es ist offiziell: '100-Dollar-Laptop' mit Windows kommt
Microsoft hat wieder einmal gewonnen. Das Unternehmen gab soeben bekannt, dass man nun offiziell Partner des One Laptop Per Child (OLPC) Projekts ist, das einen "100-Dollar-Laptop" für Schüler in... (weiter lesen)
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An Overview of Mathematical Finance
Mathematical finance is the branch of applied mathematics concerned with the financial markets . The subject has a close relationship with the discipline of financial economics, which is concerned with much of the underlying theory. Generally, mathematical finance will derive, and extend, the mathematical or numericalmodels suggested by financial economics. Thus, for example, while a financial economist might study the structural reasons why a company may have a certain share price, a financial mathematician may take the share price as a given, and attempt to use stochastic calculus to obtain the fair value of derivatives of the stock . In terms of practice, mathematical finance also overlaps heavily with the fields of financial engineering and computational finance . Arguably, all three are largely synonymous, although the latter two focus on application, while the former focuses on modelling and derivation; see Quantitative analyst . Contents 1 Mathematical finance articles 1.1 Mathematical tools 1.2 Derivatives pricing 2 See also 3 External links 3.1 Theory 3.2 Research Mathematical finance articles Mathematical tools Calculus Differential equation Numerical analysis Real analysis Probability Probability distribution Binomial distribution Log-normal distribution Expected value Value at risk Risk-neutral measure Stochastic calculus Brownian motion Lévy process Itô's lemma Fourier transform Girsanov's theorem Radon-Nikodym derivative Monte Carlo method Partial differential equations Heat equation Martingale representation theorem Feynman Kac Formula Dynkin formula Stochastic differential equations Volatility ARCH model GARCH model Stochastic volatility Mathematical model Numerical method Numerical partial differential equations Crank-Nicolson method Finite difference method Derivatives pricing Rational pricing assumptions Risk neutral valuation Arbitrage -free pricing Futures Futures contract pricing Options Put-call parity (Arbitrage relationships for options) Moneyness Option time value Pricing models Black-Scholes Black model Binomial options model Monte Carlo option model Implied volatility Volatility smile The Greeks Interest rate derivatives Short rate model Hull-White model LIBOR Market Model Heath-Jarrow-Morton framework See also Computational finance Financial Engineering Derivative (finance) , list of derivatives topics Modeling and analysis of financial markets Fundamental financial concepts - topics Model (economics) QuantLib Mathematical finance library List of finance topics , List of finance topics (alphabetical) List of economics topics , List of economists List of accounting topics List of marketing topics List of management topics
Finance Topics and Links
Topics in finance include: Contents 1 Fundamental financial concepts 2 Accounting (financial records) 3 Actuarial topics 4 Institutional setting 5 Financial services companies 6 Banking terms 7 Financial regulation 7.1 Designations and accreditation 7.2 Fraud 7.3 Industry bodies 7.4 Regulatory bodies 7.4.1 United Kingdom 7.4.2 European Union 7.4.3 United States 7.5 United States legislation 8 Financial markets 8.1 Market and instruments 8.2 Equity market 8.2.1 Equity valuation 8.2.2 Investment theory 8.3 Bond market 8.4 Money market 8.5 Commodity market 8.6 Derivatives market 8.6.1 Forward markets and contracts 8.6.2 Futures markets and contracts 8.6.3 Option markets and contracts 8.6.4 Swap markets and contracts 8.6.5 Derivative markets by underlyings 8.6.5.1 Equity derivatives 8.6.5.2 Interest rate derivatives 8.6.5.3 Credit derivatives 9 Valuation 9.1 Discounted cash flow valuation 9.2 Relative valuation 9.3 Contingent claim valuation 10 Corporate finance 11 Investment management 12 Personal finance 13 Public finance 14 Insurance 15 Economics and finance 16 Mathematics and finance 16.1 Time value of money 16.2 Financial mathematics 16.2.1 Mathematical tools 16.2.2 Derivatives pricing 17 Constraint finance 18 Virtual finance 19 The history of finance 20 Financial software tools 21 Finding related topics Fundamental financial concepts Finance an overview Arbitrage Capital (economics) Capital asset pricing model Cash flow Cash flow matching Debt Default Consumer debt Debt consolidation Debt settlement Credit counseling Bankruptcy Debt diet Debt-snowball method Discounted cash flow Financial capital Funding Financial modeling Entrepreneur Entrepreneurship Fixed income analysis Gap financing Hedge Basis risk Interest rate Risk-free interest rate Term structure of interest rates interest effective interest rate nominal interest rate interest rate basis Fisher equation Crowding out annual percentage rate interest coverage ratio Investment Foreign direct investment Gold as an investment Over-investing Leverage Locked-in value Long (finance) Liquidity Margin (finance) Mark to future Mark to market Market Impact Medium of exchange Microcredit Money Currency Coin Banknote Counterfeit Portfolio Modern portfolio theory Reference rate Reset Return Absolute return Investment performance Relative return Right-financing Risk Risk management Risk measure Coherent risk measure Spectral risk measure Value at Risk Scenario analysis Short (finance) Speculation Day trading Position trader Spread Standard of deferred payment Store of value Time horizon Time value of money Discounting Present value Future value Net present value Internal rate of return Modified internal rate of return Annuity Perpetuity Unit of account Volatility Yield Yield curve Accounting (financial records) Accounting List of accounting topics Financial accountancy Financial statements Balance sheet Cash flow statement Income statement Auditing Management accounting Accounting software Actuarial topics Actuarial topics Institutional setting Financial services companies Financial institutions Bank List of banks List of banks in Canada List of banks in Hong Kong List of banks in Singapore List of bank mergers in United States Advising bank Central bank List of central banks Commercial bank Community development bank Cooperative bank Custodian bank Depository bank Investment bank Islamic banking Merchant bank Microcredit Mutual bank Mutual savings bank National bank Offshore bank Private bank Savings bank Swiss bank Bank holding company Building society Clearing house Commercial lender Community development financial institution Credit rating agency Credit union Diversified financial Edge Act Corporation Export Credit Agencies Financial adviser Financial intermediary Financial planner Futures exchange List of futures exchanges Government sponsored enterprises Hard money lender Independent Financial Adviser Industrial loan company Insurance regulatory Insurance company Investment adviser Investment company Investment trust Large and Complex Financial Institutions Mutual fund Non-banking financial company Prime brokerage Retail broker Savings and loan association Stock broker Stock exchange List of stock exchanges Trust company Banking terms Anonymous banking Automatic teller machine Deposit Deposit creation multiplier Loan Pre-qualification Pre-approval Withdrawal Financial regulation Corporate governance Financial regulation Bank regulation Banking license Designations and accreditation Certified Financial Planner Chartered Financial Analyst CFA Institute Chartered Financial Consultant Canadian Securities Institute Independent Financial Adviser Chartered Insurance Institute Fraud Forex scam Insider trading Legal origins theory Petition mill Ponzi scheme Industry bodies International Swaps and Derivatives Association National Association of Securities Dealers Regulatory bodies Autorité des Marchés financiers Bank for International Settlements Canadian securities regulation United Kingdom Financial Services Authority ( UK ) European Union European Securities Committee ( EU ) Committee of European Securities Regulators ( EU ) United States Commodity Futures Trading Commission ( U.S. ) Municipal Securities Rulemaking Board (US) Office of the Comptroller of the Currency (US) U.S. Securities and Exchange Commission United States legislation Glass-Steagall Act (US) Gramm-Leach-Bliley Act (US) Sarbanes-Oxley Act (US) Securities Act of 1933 (US) Securities Exchange Act of 1934 (US) Investment Advisers Act of 1940 (US) USA PATRIOT Act Financial markets Market and instruments Capital markets Securities Financial markets Primary market Initial public offering Aftermarket Free market Bull market Bear market Bear market rally Market maker Dow Jones Industrial Average Nasdaq List of stock exchanges List of stock market indices List of corporations by market capitalization Equity market Stock market Stock Common stock Preferred stock Treasury stock Equity investment Index investing Private Equity Financial reports and statements Fundamental analysis Dividend Dividend yield Stock split Equity valuation Dow Theory Elliott Wave Theory economic value added Gordon model Growth stock mergers and acquisitions leveraged buyout takeover corporate raid PE ratio Market capitalization Income per share Stock valuation Technical analysis Chart patterns V-trend Investment theory Behavioral finance Efficient market hypothesis Stock market crash Stock market bubble January effect Mark Twain effect Bond market Bond (finance) zero coupon bond junk bonds convertible bond accrual bond municipal bond sovereign bond Bond valuation Yield to maturity Bond duration Bond convexity Fixed income Money market Repurchase agreements International Money Market Currency Exchange rate International currency codes Table of historical exchange rates Commodity market Commodity Asset Commodity Futures Trading Commission Day trading Drawdowns Forfaiting Fundamental analysis Futures contract Fungibility Gold as an investment Hedging Jesse Lauriston Livermore List of traded commodities MACD Ownership equity Position trader Risk (Futures) Seasonal traders Seasonal spread trading Slippage Speculation Spread Technical analysis Breakout Bear market Bottom (technical analysis) Bull market Moving average Open Interest Parabolic SAR Point and figure charts Resistance RSI Stochastic oscillator Stop loss Support Top (technical analysis) Trade Trend Derivatives market Derivative (finance) (see also Financial mathematics topics ; Derivatives pricing ) Underlying instrument Forward markets and contracts Forward contract Futures markets and contracts Backwardation Contango Futures contract Currency future Financial future Interest rate future Futures exchange Option markets and contracts Options Stock option Box spread Call option Put option Strike price Put-call parity The Greeks Black-Scholes formula Black model Binomial options model Implied volatility Option time value Moneyness At-the-money In-the-money Out-of-the-money Straddle Option style Vanilla option Exotic option Binary option European option Interest rate floor Interest rate cap Bermudan option American option Quanto option Asian option Employee stock option Warrants Foreign exchange option Interest rate options Bond options Real options Options on futures Swap markets and contracts Swap (finance) interest rate swap basis swap stock swap equity swaps currency swap variance swap see: w:Swap (finance) Derivative markets by underlyings Equity derivatives Interest rate derivatives Financial future LIBOR Forward rate agreement Interest rate swap Interest rate cap Exotic interest rate option Interest rate swap Swaption Credit derivatives Credit default swap Collateralized debt obligation Credit default option Total return swap Valuation Value (economics) Fair value Discounted cash flow valuation Cash flow Cash flow from operating activities Operating cash flow Time value of money Present value Future value Actualization Discounting Bond valuation Yield to maturity Duration Convexity Equity valuation Equivalent Annual Cost Net present value Discount rate Capital Asset Pricing Model Arbitrage pricing theory Cost of capital Weighted average cost of capital Fundamental analysis Stock valuation Business valuation The investment decision Relative valuation Dividend yield Financial ratio Market-based valuation PE ratio Relative valuation Stock image Stock profile Contingent claim valuation See also derivatives pricing Rational pricing assumptions Risk neutral valuation Arbitrage free pricing Derivatives pricing Futures Futures contract Pricing Options (and Real options ) Black-Scholes formula Black model Binomial options model Short-rate modelling Hull-White model Corporate finance Balance sheet analysis Financial ratio Business plan Capital budgeting Capital investment decisions The investment decision Business valuation Stock valuation Fundamental analysis Real options Valuation topics Fisher separation theorem The financing decision Capital structure Cost of capital Weighted average cost of capital Modigliani-Miller theorem The Dividend Decision Dividend Dividend tax Dividend yield Modigliani-Miller theorem Corporate action Managerial finance Management accounting Mergers and acquisitions leveraged buyout takeover corporate raid Real options Return on investment Return on assets Return on equity Return on capital Working capital management cash conversion cycle Return on capital Economic value added Just In Time Economic order quantity Discounts and allowances Factoring (trade) Investment management Fund management Active management Efficient market hypothesis Portfolio Modern portfolio theory Capital asset pricing model Arbitrage pricing theory Passive management Index fund Activist shareholder Mutual fund Open-end fund Closed-end fund List of mutual-fund families Financial engineering Long-Term Capital Management Hedge fund Hedge Visualization of Financial Implications Personal finance 529 plan (college savings) Budget Coverdell Education Savings Account (Coverdell ESAs, formerly known as Education IRAs) Credit & Debt Credit card Debt consolidation Mortgage loan Debit card Direct deposit Employment contract Commission Employee stock option Employee or fringe benefit Health insurance Paycheck Salary Wage Financial literacy Insurance Predatory lending Retirement plan 401(a) 401(k) 403(b) 457 plan Individual Retirement Account Roth IRA Traditional IRA SEP IRA SIMPLE IRA Conduit IRA Pension Social security Tax advantage Wealth Personal Finance software Comparison of Personal Finance software Investment club Collective investment scheme Car financing Public finance Central bank Federal Reserve Fractional-reserve banking Deposit creation multiplier Tax Income tax Payroll tax Sales tax Tax advantage Tax, tariff and trade crowding out industrial policy agricultural policy currency union monetary reform Insurance Actuarial science Annuities Catastrophe modeling Extended coverage Insurable risk Insurance Health insurance Disability insurance Flexible spending account Health savings account Long term care insurance Medical savings account Life insurance Life insurance tax shelter Permanent life insurance Term life insurance Universal life insurance Variable universal life insurance Whole life insurance Property insurance Auto insurance Boiler insurance Earthquake insurance Home insurance Title insurance Casualty insurance Business continuation insurance Fidelity bond Liability insurance Personal umbrella liability policy Commercial general liability policy Political risk insurance Surety bond Terrorism insurance Credit insurance Reinsurance Self insurance Travel insurance Insurance contract Economics and finance Economic growth Financial economics Mathematical economics Managerial economics Utility theory Mathematics and finance Time value of money Present value Future value Discounting Net present value Internal rate of return Annuity Perpetuity Financial mathematics Mathematical tools Probability Probability distribution Binomial distribution Log-normal distribution Expected value Value at risk Risk-neutral measure Stochastic calculus Brownian motion Itô's lemma Girsanov's theorem Radon-Nikodym derivative Monte Carlo methods in finance Partial differential equations Heat equation Martingale representation theorem Feynman-Kac formula Dynkin formula Stochastic differential equations Volatility ARCH model GARCH model Mathematical model Numerical method Derivatives pricing Rational pricing assumptions Risk neutral valuation Arbitrage free pricing Futures Futures contract pricing Options Black-Scholes formula Black model Binomial options model Implied volatility Historical volatility The Greeks Interest rate derivatives Short rate model Hull-White model Brace-Gatarek-Musiela model Heath-Jarrow-Morton framework Constraint finance Creditary economics Environmental finance Feminist economics Green economics Islamic economics Uneconomic growth Value of Earth Value of life Virtual finance Virtual finance The history of finance Tulip mania 1620s/1630s South Sea Bubble 1710s Panic of 1837 Railway mania 1840s Long Depression 1873 to 1896 Post-WWI hyperinflation Wall Street Crash 1929 Great Depression 1930s Oil Shock 1973 1979 energy crisis Notable Bankrupts Black Monday 1987 Asian financial crisis 1990s Stock market downturn of 2002 Financial software tools Finance Software Quantitative Analysis Software Fundamental Analysis Software Technical Analysis Software activeQuant Excel MATLAB MoV (Merchant of Venice) TradeStation Stock image coefficient Straight Through Processing Software TaxWise Finding related topics list of accounting topics list of management topics list of marketing topics list of economics topics list of international trade topics list of information technology management topics list of production topics list of business law topics list of business ethics, political economy, and philosophy of business topics list of business theorists list of economists list of corporate leaders Actuarial topics
Topics and Concepts in Islamic Banking
Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law ( Sharia ) principles and guided by Islamic economics . In particular, Islamic law prohibits usury , the collection and payment of interest , also commonly called riba in Islamic discourse. In addition, Islamic law prohibits investing in businesses that are considered unlawful, or haraam (such as businesses that sell alcohol or pork, or businesses that produce media such as gossip columns or pornography, which are contrary to Islamic values). In the late 20th century , a number of Islamic banks were created, to cater to this particular banking market. Contents 1 History of modern Islamic banking 2 Principles 3 Shariah Advisory Council/Consultant 4 Concepts In Islamic debt banking 4.1 Bai' al-Inah (Sale and Buy Back Agreement) 4.2 Bai' Bithaman Ajil (Deferred Payment Sale) 4.3 Bai muajjal 4.4 Baihaqi kasi salam 4.4.1 Basic Features And Conditions Of Salam 4.5 Hibah (Gift) 4.6 Ijarah 4.7 Advantages of Ijarah 4.8 Ijarah Thumma Al Bai' (Hire Purchase) 4.9 Ijarah-Wal-Iqtina 4.10 Istisna'a 4.11 Mudarabah (Profit Loss Sharing) 4.12 Murabahah (Cost Plus) 4.13 Musawamah 4.14 Musharakah (Joint Venture) 4.15 Qard Hassan (Good Loan) 4.16 Sukuk (Islamic Bonds) 4.17 Takaful (Islamic Insurance) 4.18 Wadiah (Safekeeping) 4.19 Wakalah (Agency) 5 Islamic Equity Funds 6 Islamic laws on trading 7 Criticism 8 See also 9 External links 10 Islamic Financial Institutions History of modern Islamic banking The first modern experiment with Islamic banking was undertaken in Egypt under cover without projecting an Islamic image—for fear of being seen as a manifestation of Islamic fundamentalism that was anathema to the political regime. The pioneering effort, led by Ahmad El Najjar, took the form of a savings bank based on profit-sharing in the Egyptian town of Mit Ghamr in 1963. This experiment lasted until 1967 (Ready 1981), by which time there were nine such banks in the country. [1] Principles Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Shariah , known as Fiqh al-Muamalat (Islamic rules on transactions). The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba´ (interest). Amongst the common Islamic concepts used in Islamic banking are profit sharing ( Mudharabah ), safekeeping ( Wadiah ), joint venture ( Musharakah ), cost plus ( Murabahah ), and leasing ( Ijarah ). In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments. However, the fact that it is profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabaha . Another approach is Ijara wa Iqtina , which is similar to real-estate leasing . Islamic banks handle loans for vehicles in a similar way (selling the vehicle at a higher-than-market price to the debtor and then retaining ownership of the vehicle until the loan is paid). There are several other approaches used in business deals. Islamic banks lend their money to companies by issuing floating rate interest loans. The floating rate of interest is pegged to the company's individual rate of return. Thus the bank's profit on the loan is equal to a certain percentage of the company's profits. Once the principal amount of the loan is repaid, the profit-sharing arrangement is concluded. This practice is called Musharaka . Further, Mudaraba is venture capital funding of an entrepreneur who provides labor while financing is provided by the bank so that both profit and risk are shared. Such participatory arrangements between capital and labor reflect the Islamic view that the borrower must not bear all the risk/cost of a failure, resulting in a balanced distribution of income and not allowing lender to monopolize the economy. And finally, Islamic banking is restricted to Islamically acceptable deals, which exclude those involving alcohol, pork, gambling, etc. Thus ethical investing is the only acceptable form of investment, and moral purchasing is encouraged. Islamic banks have grown recently in the Muslim world but are a very small share of the global banking system. Micro-lending institutions founded by Muslims , such as Grameen Bank , use conventional lending practices, and are popular in some Muslim nations, but some do not consider it to be true Islamic banking. Islamic banking should be synonymous with full-reserve banking , with banks achieving a 100% reserve ratio [2] . However, in practice, this is rarely the case [3] . Shariah Advisory Council/Consultant Islamic banks and banking institutions that offer Islamic banking products and services (IBS banks) are required to establish Shariah advisory committees/consultants to advise them and to ensure that the operations and activities of the bank comply with Shariah principles. In Malaysia, the National Shariah Advisory Council, which additionally set up at Bank Negara Malaysia (BNM), advises BNM on the Shariah aspects of the operations of these institutions and on their products and services. (See: Islamic banking in Malaysia ) Concepts In Islamic debt banking Bai' al-Inah (Sale and Buy Back Agreement) The financier sells an asset to the customer on a deferred-payment basis, and then the asset is immediately repurchased by the financier for cash at a discount. The buying back agreement allows the bank to assume ownership over the asset in order to protect against default without explicitly charging interest in the event of late payments or insolvency. Bai' Bithaman Ajil (Deferred Payment Sale) This concept refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties. This is similar to Murabahah, except that the debtor makes only a single installment on the maturity date of the loan. By the application of a discount rate , an Islamic bank can collect the market rate of interest. Bai muajjal Literally bai muajjal means a credit sale. Technically, it is a financing technique adopted by Islamic banks that takes the form of murabaha muajjal. It is a contract in which the bank earns a profit margin on the purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. It has to expressly mention cost of the commodity and the margin of profit is mutually agreed. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price. Baihaqi kasi salam Bai salam means a contract in which advance payment is made for goods to be delivered later on. The seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advance price fully paid at the time of contract. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. The objects of this sale are goods and cannot be gold, silver, or currencies. Barring this, Bai Salam covers almost everything that is capable of being definitely described as to quantity, quality, and workmanship. Basic Features And Conditions Of Salam First of all, it is necessary for the validity of Salam that the buyer pays the price in full to the seller at the time of effecting the sale. It is necessary because in the absence of full payment by the buyer, it will be tantamount to sale of a debt against a debt, which is prohibited, as the basic wisdom behind the permissibility of salam is to fulfill the instant needs of the seller. If the price is not paid to him in full, the basic purpose of the transaction will be defeated. Therefore, all the Muslim jurists are unanimous on the point that full payment of the price is necessary in Salam. However, Imam Malik is of the view that the seller may give a concession of two or three days to the buyers, but this concession should not form part of the agreement. Salam can be effected in those commodities only the quality and quantity of which can be specified exactly. The things whose quality or quantity is not determined by specification cannot be sold through the contract of salam. For example, precious stones cannot be sold on the basis of salam, because every piece of precious stones is normally different from the other either in its quality or in its size or weight and their exact specification is not generally possible. Salam cannot be effected on a particular commodity or on a product of a particular field or farm. For example, if the seller undertakes to supply the wheat of a particular field, or the fruit of a particular tree, the salam will not be valid, because there is a possibility that the crop of that particular field or the fruit of that tree is destroyed before delivery, and, given such possibility, the delivery remains uncertain. The same rule is applicable to every commodity the supply of which is not certain. It is necessary that the quality of the commodity (intended to be purchased through salam) is fully specified leaving no ambiguity which may lead to a dispute. All the possible details in this respect must be expressly mentioned. It is also necessary that the quantity of the commodity is agreed upon in unequivocal terms. If the commodity is quantified in weights according to the usage of its traders, its weight must be determined, and if it is quantified through measures, its exact measure should be known. What is normally weighed cannot be quantified in measures and vice versa. The exact date and place of delivery must be specified in the contract. Salam cannot be effected in respect of things which must be delivered at spot. For example, if gold is purchased in exchange of silver, it is necessary, according to Shari‘ah, that the delivery of both be simultaneous. Here, salam cannot work. Similarly, if wheat is bartered for barley, the simultaneous delivery of both is necessary for the validity of sale. Therefore the contract of salam in this case is not allowed. Hibah (Gift) This is a token given voluntarily by a creditor to a debtor in return for a loan. Hibah usually arises in practice when Islamic banks do not voluntarily pay their customers interest on savings account balances. Ijarah Ijarah means lease, rent or wage. Generally, Ijarah concept means selling benefit or use or service for a fixed price or wage. Under this concept, the Bank makes available to the customer the use of service of assets / equipments such as plant, office automation, motor vehicle for a fixed period and price. Advantages of Ijarah The following are the advantage of Ijarah to lessee: Ijarah conserves capital as it may provide 100% financing. Ijarah enables the Lessee to have the use of the equipment on payment of the first rental. This is important since it is the use (and not ownership) of the equipment that generates income. Ijarah arrangements are flexible because the terms and rental provision may be tailored to suit the needs of the Lessee. Therefore, it aids corporate planning and budgeting Ijarah is not borrowing and is therefore not required to be disclosed as a liability in the Balance Sheet of the Lessee. Being an “off balance sheet” financing, it is not included in the computation of gearing ratios imposed by bankers. The borrowing capacity of the Lessee is therefore not impaired when leasing is resorted to as a mean of financing. All payments of rentals are treated as payment of operating expenses and are therefore, fully tax-deductible. Leasing therefore offers tax-advantages to profit making concerns. There are many types of equipment, which becomes obsolete before the end of its actual economic life. This is particularly true in high technology equipment like computers. Thus the risk is passed onto the Lessor who will undoubtedly charge a premium into the lease rate to compensate for the risk. A Lessee may be willing to pay the said premium as an insurance against obsolescence. If the equipment use is for a relatively short period of time, it may be more profitable to lease than to buy. If the equipment is for short duration and the equipment has a very poor second hand value (resale value), leasing would be the best method for acquisition. Ijarah Thumma Al Bai' (Hire Purchase) These are variations on a theme of purchase and lease back transactions. There are two contracts involved in this concept. The first contract, an Ijarah contract (leasing/renting), and the second contract, a Bai contract (purchase) are undertaken one after the other. For example, in a car financing facility, a customer enters into the first contract and leases the car from the owner (bank) at an agreed rental over a specific period. When the lease period expires, the second contract comes into effect, which enables the customer to purchase the car at an agreed price. In effect, the bank sells the product to the debtor, at an above market-price profit margin, in return for agreeing to receive the payment over a period of time; the profit margin on the lease is equivalent to interest earned at a fixed rate of return. This type of transaction is particularly reminiscent of contractum trinius , a complicated legal trick used by European bankers and merchants during the Middle Ages, which involved combining three individually legal contracts in order to produce a transaction of an interest bearing loan (something that the Church made illegal). Ijarah-Wal-Iqtina A contract under which an Islamic bank provides equipment, building, or other assets to the client against an agreed rental together with a unilateral undertaking by the bank or the client that at the end of the lease period, the ownership in the asset would be transferred to the lessee. The undertaking or the promise does not become an integral part of the lease contract to make it conditional. The rentals as well as the purchase price are fixed in such manner that the bank gets back its principal sum along with profit over the period of lease. Istisna'a Istisna'a is a contractual agreement for manufacturing goods and commodities, allowing cash payment in advance and future delivery or a future payment, and future delivery. Istisna'a can be used for providing the facility of financing the manufacture or construction of houses, plants, projects, and building of bridges, roads, and highways. Mudarabah (Profit Loss Sharing) Mudarabah is an arrangement or agreement between a capital provider and an entrepreneur, whereby the entrepreneur can mobilize funds for its business activity. The entrepreneur provides expertise and management and is referred to as the Mudarib . Any profits made will be shared between the capital provider and the entrepreneur according to an agreed ratio, where both parties share in profits and only capital provider bears all the losses if occurred. The profit-sharing continues until the loan is repaid. The bank is compensated for the time value of its money in the form of a floating interest rate that is pegged to the debtor's profits. Murabahah (Cost Plus) Main article: Murabaha This concept refers to the sale of goods at a price, which includes a profit margin agreed to by both parties. The purchase and selling price, other costs, and the profit margin must be clearly stated at the time of the sale agreement. The bank is compensated for the time value of its money in the form of the profit margin. This is a fixed-income loan for the purchase of a real asset (such as real estate or a vehicle), with a fixed rate of interest determined by the profit margin. The bank is not compensated for the time value of money outside of the contracted term (i.e., the bank cannot charge additional interest on late payments); however, the asset remains in the ownership of the bank until the loan is paid in full. This type of transaction is similar to rent-to-own arrangements for furniture or appliances that are very common in North American stores. Musawamah Musawamah is a general and regular kind of sale in which price of the commodity to be traded is bargained between seller and the buyer without any reference to the price paid or cost incurred by the former. Thus, it is different from Murabaha in respect of pricing formula. Unlike Murabaha, however, the seller in Musawamah is not obliged to reveal his cost. Both the parties negotiate on the price. All other conditions relevant to Murabaha are valid for Musawamah as well. Musawamah can be used where the seller is not in a position to ascertain precisely the costs of commodities that he is offering to sell. Musharakah (Joint Venture) Musharakah is a relationship established under a contract by the mutual consent of the parties for sharing of profits and losses in the joint business. It is an agreement under which the Islamic bank provides funds, which are mixed with the funds of the business enterprise, and others. All providers of capital are entitled to participate in management, but not necessarily required to do so. The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by each partner strictly in proportion to respective capital contributions. This concept is distinct from fixed-income investing (i.e. issuance of loans). Qard Hassan (Good Loan) This is a loan extended on a goodwill basis, and the debtor is only required to repay the amount borrowed. However, the debtor may, at his or her discretion, pay an extra amount beyond the principal amount of the loan (without promising it) as a token of appreciation to the creditor. In the case that the debtor does not pay an extra amount to the creditor, this transaction is a true interest-free loan. Some Muslims consider this to be the only type of loan that does not violate the prohibition on riba, since it is the one type of loan that truly does not compensate the creditor for the time value of money [4] . Sukuk (Islamic Bonds) Main article: Sukuk Sukuk is the Arabic name for a financial certificate but can be seen as an Islamic equivalent of bond. However, fixed-income, interest-bearing bonds are not permissible in Islam. Hence, Sukuk are securities that comply with the Islamic law and its investment principles, which prohibit the charging or paying of interest. Financial assets that comply with the Islamic law can be classified in accordance with their tradability and non-tradability in the secondary markets. Conservative estimates suggest that over US$ 500 billion of assets are managed according to Islamic investment principles. Such principles form part of Shariah, which is often understood to be Islamic law, but it is actually broader than this in that it also encompasses the general body of spiritual and moral obligations and duties in Islam. Takaful (Islamic Insurance) Main article: Takaful Takaful is an alternative form of cover that a Muslim can avail himself against the risk of loss due to misfortunes. The concept of takaful is not a new concept; in fact, it had been practiced by the Muhajrin of Mecca and the Ansar of Medina following the hijra of the Prophet over 1,400 years ago. Takaful is based on the idea that what is uncertain with respect to an individual may cease to be uncertain with respect to a very large number of similar individuals. Insurance by combining the risks of many people enables each individual to enjoy the advantage provided by the law of large numbers . In modern business, one of the ways to reduce the risk of loss due to misfortunes is through insurance which spreads the risk among many people. The concept of insurance where resources are pooled to help the needy does not contradict Shariah. However, conventional insurance involves the elements of uncertainty ( Al-gharar ) in the contract of insurance, gambling ( Al-maisir ) as the consequences of the presence of uncertainty and interest ( Al-riba ) in the investment activities of the conventional insurance companies that contravene the rules of Shariah. It is generally accepted by Muslim jurists that the operation of conventional insurance does not conform to the rules and requirements of Shariah. Wadiah (Safekeeping) In Wadiah , a bank is deemed as a keeper and trustee of funds. A person deposits funds in the bank and the bank guarantees refund of the entire amount of the deposit, or any part of the outstanding amount, when the depositor demands it. The depositor, at the bank's discretion, may be rewarded with a hibah (gift) as a form of appreciation for the use of funds by the bank. In this case, the bank compensates depositors for the time-value of their money (i.e. pays interest) but refers to it as a gift because it does not officially guarantee payment of the gift. Wakalah (Agency) This occurs when a person appoints a representative to undertake transactions on his/her behalf, similar to a power of attorney . Islamic Equity Funds Islamic investment equity funds market is one of the fastest-growing sectors within the Islamic financial system. Currently, there are approximately 100 Islamic equity funds worldwide. The total assets managed through these funds currently exceed US$5 billion and is growing by 12–15% per annum. With the continuous interest in the Islamic financial system, there are positive signs that more funds will be launched. Some Western majors have just joined the fray or are thinking of launching similar Islamic equity products. Despite these successes, this market has seen a record of poor marketing as emphasis is on products and not on addressing the needs of investors. Over the last few years, quite a number of funds have closed down. Most of the funds tend to target high net worth individuals and corporate institutions, with minimum investments ranging from US$50,000 to as high as US$1 million. Target markets for Islamic funds vary, some cater for their local markets, e.g., Malaysia and Gulf-based investment funds. Others clearly target the Middle East and Gulf regions, neglecting local markets and have been accused of failing to serve Muslim communities. Since the launch of Islamic equity funds in the early 1990s, there has been the establishment of credible equity benchmarks by Dow Jones Islamic market index and the FTSE Global Islamic Index Series. The Web site failaka.com monitors the performance of Islamic equity funds and provide a comprehensive list of the Islamic funds worldwide. Islamic laws on trading The Qur'an prohibits gambling (games of chance involving money). The hadith , in addition to prohibiting gambling (games of chance), also prohibits bayu al-gharar (trading in risk, where the Arabic word gharar is taken to mean "risk"). The Hanafi madhab (legal school) in Islam defines gharar as "that whose consequences are hidden." The Shafi legal school defined gharar as "that whose nature and consequences are hidden" or "that which admits two possibilities, with the less desirable one being more likely." The Hanbali school defined it as "that whose consequences are unknown" or "that which is undeliverable, whether it exists or not." Ibn Hazm of the Zahiri school wrote " Gharar is where the buyer does not know what he bought, or the seller does not know what he sold.” The modern scholar of Islam, Professor Mustafa Al-Zarqa, wrote that "Gharar is the sale of probable items whose existence or characteristics are not certain, due to the risky nature that makes the trade similar to gambling." There are a number of hadith who forbid trading in gharar , often giving specific examples of gharhar transactions (e.g., selling the birds in the sky or the fish in the water, the catch of the diver, an unborn calf in its mother's womb etc.). Jurists have sought many complete definitions of the term. They also came up with the concept of yasir (minor risk); a financial transaction with a minor risk is deemed to be halal (permissible) while trading in non-minor risk ( bayu al-ghasar ) is deemed to be haram . [5] What gharar is, exactly, was never fully decided upon by the Muslim jurists. This was mainly due to the complication of having to decide what is and is not a minor risk. Derivatives instruments (such as stock options) have only become common relatively recently. Some Islamic banks do provide brokerage services for stock trading and perhaps even for derivatives trading.. Criticism Islamabad , Pakistan , June 16 , 2004 : Members of leading Islamist political party in Pakistan, the Muttahida Majlis-e-Amal (MMA) party, staged a protest walkout from the National Assembly of Pakistan against what they termed derogatory remarks by a minority member on interest banking: Taking part in the budget debate, M.P. Bhindara, a minority MNA [Member of the National Assembly]...referred to a decree by an Al-Azhar University 's scholar that bank interest was not un- Islamic . He said without interest the country could not get foreign loans and could not achieve the desired progress. A pandemonium broke out in the house over his remarks as a number of MMA members...rose from their seats in protest and tried to respond to Mr Bhandara's observations. However, they were not allowed to speak on a point of order that led to their walkout.... Later, the opposition members were persuaded by a team of ministers...to return to the house...the government team accepted the right of the MMA to respond to the minority member's remarks.... Sahibzada Fazal Karim said the Council of Islamic ideology had decreed that interest in all its forms was haram in an Islamic society. Hence, he said, no member had the right to negate this settled issue [6] . Many Muslims and non Muslims alike have opposed these Islamic banks, claiming that they do deal in interest but merely conceal it through legal tricks. Indeed, from an economic perspective, Islamic banks do compensate and charge for the time value of money , thus paying and receiving what is known in economics as interest. Such people compare Islamic banking to contractum trinius —a legal trick devised by European bankers and merchants during the Middle Ages , designed to facilitate the borrowing of money at a fixed rate of interest (something that the Church fiercely opposed) through combining three different contractual agreements that in and of themselves were not prohibited by the Church. While Islamic law prohibits the collection of interest, it does allow a seller to resell an item at a higher price than it was bought for, as long as there are clearly two transactions. These arguments and criticism are exactly the same as those used at the time of Prophet Muhammad. The Qur'an addresses this issue in simple terms, Interest is forbidden by Allah, while trade has been permitted by Him: "Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: "Trade is like usury," but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever)." (Surah Baqarah 2:275) - http://www.usc.edu/dept/MSA/quran/002.qmt.html See also Contractum trinius e-dinar e-Dirham Full-reserve banking Gold dinar Islamic economical jurisprudence Islamic banking in Malaysia Reserve requirement Green economics Creditary economics Micro venture capital Economy of the OIC Mont de Piété List of Islamic terms in Arabic
Topics in Options and Derivatives Markets
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How to set up a Hedge Fund
[Latestpages-all-1-none] More Tutorials Focus Home Page Services Providers Hedge Fund Books: US Hedge Fund Books: UK Introductions & Guides Papers & Research People & Profiles Research Centres Getting Started Money Legal Services Prime Broker Services Office Space Hedge Fund Mechanics Fiduciary Audits Time Line Accredited Investors Income Test What is Income? Net Worth Test Partnerships and Corporations as Accredited Investors Trusts as Accredited Investors List of Accredited Investor Tests Proposed Change to Accredited Investor Standard Investment Adviser Registration Side Letters Incubator Hedge Funds Offshore Good News By and large there seem to be two groups of people in circulation these days: those who want to run a hedge fund and those that want to invest in them. For many, the dream of running a hedge fund is realized once they move beyond the bounds of cocktail party chatter and investigate for themselves what is required to set up a hedge fund. Luckily for Main Street , the answers from Wall Street are amazingly simple. Today, pretty much anyone with $15k or thereabouts can start a hedge fund. What money cannot buy is talent, courage and entrepreneurial drive. Traders and money managers often dream about one day running their own hedge fund, managing large sums of money, and competing toe-to-toe with the world's top traders. For the uninitiated, the first step toward setting up a hedge fund is getting a better grasp on what exactly a hedge fund is and what it is not. Not a Mutual Fund. Unlike a mutual fund, a hedge fund is not open to any and all investors and it cannot advertise for investors. Unlike a mutual fund, a hedge fund can use any means necessary to make money. The SEC does not allow a mutual fund manager to use derivatives or employ shorting strategies to make money. As a mutual fund manger is limited to taking long positions in stocks and in bonds, there is more risk to investing in the typical mutual fund than investing in the typical hedge fund. Unlike a mutual fund manager, a hedge fund manager can use long and short positions and is better positioned to make money in good and bad markets. A mutual fund manager is paid on the basis of the amount of assets under management and makes money even when he or she loses money for investors. Unlike a mutual fund manager, a hedge fund manager is paid primarily for results. Unlike a mutual fund manager, a hedge fund manager often invests significant amounts of his or her own money into the funds that they manage. Unlike a mutual fund manager, a hedge fund manager must aggressively preserve capital and make money for investors. Hedge fund managers cannot afford to be “gunslingers” and take uncalculated risks since, as the old adage states, “it takes money to make money.” For these reasons, hedge funds are far more attractive to investors than mutual funds. It is widely agreed that the best minds in the money management business have moved from mutual funds and brokerages to the world of hedge funds. Hedge or Hedged Fund? The term “hedge fund” was reportedly coined by Alfred Winslow Jones in the 1940s. Hedge funds are private investment pools of money. Originally, a hedge fund invested in equities, used leverage, and actually had to “hedge” and protect itself against market swings by taking long and short positions. Only a hedging fund was actually called a “hedged fund.” A hedge fund is structured as a limited partnership structured to give the general partner ( e.g., the fund manager) a share of the profits earned on the limited partner's ( e.g., the investors) money. The profit sharing ( e.g. called a “performance fee” if referring to an offshore fund or an “incentive allocation” if referring to an onshore fund) is typically 20 percent of the fund's profits. It is believed that probably about the time when the powers that be on Wall Street changed the term from “hedged fund” to “hedge fund,” it added on management fees. Management fees – typically 1 to 2 percent of assets under management — are paid to support the cost of day-to-day fund operations. From an investor's standpoint, management fees are unfortunate in that they cause fund managers to focus on asset gathering rather than fund performance. The best hedge funds are those that actually engage in arbitrage and employ hedging strategies and duck or minimize management fees. As noted, a genuine hedge fund has a manager that engages in arbitrage and employs hedging strategies. So-called “hedge fund managers” that use traditional, long-only equity strategies and do not hedge in fact operate a type of mutual fund, and an expensive one at that. A hedge fund manager that uses large amounts of leverage to take long positions but fails to use short positions to protect against market bottoms will most likely fail. Though they represent a very small portion of the U.S. financial markets, hedge funds are (reportedly) rapidly increasing in number and pose a threat to world financial markets (allegedly). Whatever growth in the industry exists, it is fueled by increased interest from both the top and bottom levels of the investing public. At the top level, hedge funds attract a mix of institutional investors, pension plans, funds of hedge funds, endowments, and foundations seeking to diversify their portfolios. At the bottom level (under $200 million in assets), hedge funds attract the working wealthy and their IRAs, high net worth investors, family offices, and small businesses looking for superior returns. This growth has not escaped the notice of the SEC, which has expressed concerns about the retailization of hedge funds and its potential impact on the securities markets. Getting Started It is very easy for people to join the hedge fund industry. Setting up a hedge fund gets easier every year. By networking, some of the best legal and financial services talent in the business is either a click or a phone call away. Brokerages, lawyers and accountants team up in order to provide a one-stop shop approach to developing and launching a hedge fund. Much of the consultation work (if not all of it) is conducted over the phone or Internet. Key items needed to start a hedge fund are the following: money, a lawyer, a prime (or introducing) broker, office space (or a home office), and eventually, an accountant. Money. The first people hedge fund managers tap for seed capital money are friends and family members. It is hard to attract institutional investors to a new fund. The first investors in a new fund are usually the fund manager's close associates and family members who know and trust the fund manager. As noted, all hedge funds have some if not most of their manager's wealth invested in them. Legal Services. The legal development process normally begins with a planning consultation. This is when important issues ( e.g., investment adviser registration, location of the hedge fund and its management, reliance on safe harbors and exemptions, etc.) are addressed and resolved. A good legal consultation will expose areas (outside the legal process) that need further planning. Once the course is charted, the legal development process begins. The fund and management company entities are first formed in their appropriate jurisdictions. This enables the fund manager to begin the process of opening bank and brokerage accounts and preparing for the administrative needs of the hedge fund. After the entities are formed, the legal team gathers the necessary information to form the operating agreements for the entities and then the offering documents, first in draft stage and then finalized for distribution to prospective investors. Prime Broker Services. Once the lawyer is engaged, the hedge fund is organized, and the offering documents are drafted, the next thing needed is a relationship with a prime (or introducing) broker. An introducing broker is a registered broker/dealer that has an agreement with a prime broker to use that firm's custody and clearing services. A good prime broker or introducing broker will provide marketing and capital introduction services. Conventional advertising and marketing of hedge funds is not allowed but workarounds have been developed by brokers so that good fund managers get the right kind of investor attention. When setting up a hedge fund, it is best to stay away from the retail brokerage firms since they are not geared toward hedge funds and the needs of hedge fund managers. Office Space. Advances in technology and the proliferation of information have made investment research and trading convenient as well as efficient. One can work from any location where there is high-speed Internet service. As everyone knows someone starting a hedge fund these days, the industry cannot not keep track of all the hedge fund managers and their business operations, whether based at home or at a hedge fund hotel. There is no stigma to running a hedge fund from home. Hedge fund managers — the best in the business — can and do work from home. Enough said. Hedge Fund Mechanics. To start a hedge fund, the aspiring hedge fund manager needs to set up the hedge fund entity and the management company. In the United States , the hedge fund is typically established as a limited partnership and in some cases as a limited liability company. With hedge fund start ups, the management company will also function as the hedge fund's general partner and is set up as a limited liability company or, in some special cases, as a corporation. The lawyer is responsible for drafting the offering documents. Some fund organizers try to draft their own set of documents or use a family member who is a lawyer with experience in a specialty other than securities law. In most cases, it will be obvious to the potential investor that proper legal counsel was lacking. A poor set of offering documents is a mark against the hedge fund manager. One document that is of particular importance is the private placement memorandum (PPM), since potential investors generally rely heavily on the information that the PPM provides. The PPM is an extensive document individually created for each hedge fund. Although there are no specific disclosure requirements for the PPM (provided the offering is made solely to accredited investors) and a lot of boilerplate language is used, basic information about the hedge fund's manager and the hedge fund itself is disclosed. The information provided is general in nature, and it normally presents in broad terms the fund's investment strategies and practices. For example, disclosures generally include the fact that the hedge fund's manager may invest fund assets in illiquid, difficult-to-value securities, and that the hedge fund manager reserves the discretion to value such securities as he believes appropriate under the circumstances. Also often included is a disclosure about the hedge fund manager having discretion to invest fund assets outside the stated strategies. PPMs tend to be very protective of the hedge fund manager. As a fallback measure, the PPM will list every type of security, commodity, or futures contract in the financial market to provide the hedge fund manager with freedom and latitude to make money. The PPM usually provides information about the qualifications and procedures for a prospective investor to become a limited partner. It also provides information on fund operations, such as fund expenses, allocations of gains and losses, and tax aspects of investing in the fund. Disclosure of lock-up periods, redemption rights and procedures, fund service providers, potential conflicts of interests to investors, conflicts of interest due to fund valuation procedures, “side-by-side management” of multiple accounts, and allocation of certain investment opportunities among clients may be discussed briefly or in greater detail, depending on the fund. The PPM also may include disclosures concerning soft dollar arrangements, redirection of business to brokerages that introduce investors to the fund, and further disclosure of how soft dollars are used. Copies of financial statements may be provided with the PPM. Fiduciary Audits. In theory, the investment policy and strategy sections of the PPM exist to help investors evaluate the hedge fund as an investment opportunity. Therefore, PPMs should be written with accountability in mind. Consider the PPM that states that “the goal of the fund is capital preservation.” Unless capital preservation is clearly defined in terms of asset allocation, one might expect that all of the fund's assets consist of principal protected investments with specific maturity dates as such investment would most likely preserve capital. Given this, PPMs should not state capital preservation as a goal unless the fund invests in items that return the principal investment. When used in a PPM, the terms “capital preservation,” “liquidity and marketability,” “risk aversion” need to be defined (and adhered to by the hedge fund manager) with a future audit in mind. In the future, there may be a trend toward investment policy audits (at the top levels of the hedge fund industry). An investment policy audit evaluates whether the hedge fund manager is in compliance with the statements made in the investment policy and investment strategy section of the PPM. An asset allocation audit examines whether the fund's portfolio is within the range of a PPMs stated asset allocations percentages. Time Line. The legal process of setting up a hedge fund usually can be completed within 60-90 days, though registration as an investment adviser, specialized circumstances, or delays in providing information can lengthen the fund launch process. Accredited Investors Offerings made to “accredited investors” exclusively are exempt from disclosure requirements under Rule 506. Before you allow an investor into your hedge fund, you will need to determine if a prospective investor is accredited. There are two tests for accreditation: the Income Test and the Net Worth Test. Generally, accredited investors include individuals with a minimum annual income of $200,000 ($300,000 with spouse) or $1 million in net worth and most institutions with $5 million in assets. Income Test The Income Test states that any natural person who had an individual income in excess of $200,000 in each of the 2 most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year is an accredited investor. Though joint spousal income can be used to establish accredited investor status, proposed investors cannot use separate income for one year and joint income for the next year to meet the Income Test. What is Income? Salary and bonus income; Taxable income (gross receipts less cost of goods or services and expenses) in the case of sole proprietorships; Distributable income from trusts and partnerships; Interest and dividend income excluding unrealized gains; and Vested contributions to a profit-sharing or pension plan made on behalf of an individual. Future income is relevant. You are required to inquire into the proposed investor's income for the year in question to determine whether an individual can meet the income levels. You cannot simply accept a proposed investor's representation as to his future income. If the prospective investor has a consistent pattern of income that exceeds $ 200,000, or $300,000 joint income, the investor's representation is acceptable. If the proposed investor's past income includes unusual and non-reoccurring income, you should request that the proposed investors provide you with an audited (or CPA confirmed) income statement. Net Worth Test Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of purchase exceeds $1,000,000 is an accredited investor. Neither the Securities Act of 1933 nor the various rules and interpretations associated with the law in this area define exactly what makes up net worth. To determine net worth, a spouse's assets can be counted even if only one is the purchaser and does not exclude any of the purchaser's assets (e.g., home, furnishings, clothing, jewelry, etc.) from determination of net worth. When in doubt of a proposed investor's income or net worth, the best bet is to request a no-action letter from the SEC or to request that prospective investors provide you with an audited (or CPA confirmed) financial statement of net worth or income. Partnerships and Corporations as Accredited Investors The net worth of all the partners in a general partnership proposed investor may be combined to establish accredited investor status (which may be greater than the net worth of the general partnership itself). The net worth of a consolidated group of corporations may be combined as well. Trusts as Accredited Investors The net worth of the grantor and not the trust or its beneficiaries is to be considered where the trust is revocable. With respect to an irrevocable trust, the net worth of the trust itself must be evaluated to determine whether the net worth requirement is met. The grantor of an irrevocable trust will be deemed the purchaser where the grantor possesses significant rights with respect to the trust. Note, however, that if a bank is acting as fiduciary, any trust can qualify as an accredited investor under Rule 501(a)(1). You should obtain from proposed investors considered to be accredited investors the following: Representations and financial information confirming net worth in the case of investors whose accredited net worth status depends on net worth exceeding $1 million; and Representations and copies of relevant portions of individual tax returns, along with representations as to the expectation of the level of future income, in the case of the investor whose accredited status depends on income. List of Accredited Investor Tests In addition to the Income and Net Worth Tests, there are other accredited investor categories. They are listed below. In all cases, a proposed investor must have knowledge and experience in financial and business matters so as to be capable of evaluating the relative merits and risks of an investment in your fund. Individual with Net Worth In Excess of $1.0 Million. A natural person (not an entity) whose net worth, or joint net worth with his or her spouse, at the time of purchase exce | |
