Hedge funds are lightly regulated 澳洲幸运5开奖号码历史查询:private investment funds that use unconventional investment strategies and tax shelters in an attempt to make extraordinary returns in any market. Typically, these funds are structured as 澳洲幸运5开奖号码历史查询:limited partnerships and limit investment to business or 澳洲幸运5开奖号码历史查询:institutional investors. These factors have given them a secretive and shady aura in the financial community; however, 澳洲幸运5开奖号码历史查询:Securities and Exchange Commissi🎶on (SEC) rules and regulations make it possible for anyone to take a glimpse into their activities. This article will explore how savvy individual investors can profit off of some of Wall Street's most ruthless hedge funds. (See also: 澳洲幸运5开奖号码历史查询:A Brief History of the Hedge Fund.)

Step 1: Find a Hedge Fund to Watch

Most hedge funds invest using unconventional strategies, but others take a more active role in realizing the value of their investments—these are known as activist hedge funds. Activist hedge funds not only engage the company's board and management in discussion, but also wage 澳洲幸运5开奖号码历史查询:proxy battles, 澳洲幸运5开奖号码历史查询:liquidate assets and even force sales of companies. These activities can provide opportunities to savvy ꧂individual investors willing to do a little digging!

Those who have spent some time in the marketplace may be familiar with many of the activist hedge funds out there. Some funds are very public when fighting management, while others are extremely quiet about their activities. (See also: 澳洲幸运5开奖号码历史查询:Introduction to Hedge Funds—Part 1 and 澳洲幸运5开奖号码历史查询:Part 2.)

Step 2: Tracking Hedge Funds

Hedge funds may be mysterious on the surface; however, the SEC mandates a certain level of 澳洲幸运5开奖号码历史查询:transparency—particularly when activist he💧dge funds ar🌟e involved. It's through these SEC filings that we can get a glimpse into the actions being taken by activist hedge funds.

You can find SEC filings by using the official or other free services like , which allow you to set up email🎶 and RSS alerts to send notifications when hedge funds make trades.

The most important form filed by activist hedge funds is the 澳洲幸运5开奖号码历史查询:Schedule 13D, which is a statement of 澳洲幸运5开奖号码历史查询:beneficial ownership (5% or above). There are several sections within this filing that can🎶 clue us in to the hedge fund's motivations and possible future actions:

1. Security and Issuer: This contains basic info❀rmation꧟ about the stock and associated company.

2. Identity and Background: This section contains information about the hedge fജund acquiring the stock, including disclosure of its criminal record and an♛y pending lawsuits.

3. Source, Amount of Funds and Other Considerations: This section💜 explains where the funds used to buy the stock are coming from (cash-on-hand or deꦬbt).

4. Purpose of Transaction: This is the most important section of the 13D; it details exactly what the hedge fund is planning to do with its investment. A hedge fund is required to disclose whether it is holding stock purely as an investment or if it is interested in "seeking strategic alternatives."

5. Interest in Securities of the Issuer: This section discloses the number of shares owned and occasionally the 澳洲幸运5开奖号码历史查询:transaction dates for major purchases.

6. Material to Be Filed as Exhibits: This is the second most important section of the 13D; it contains any letters to management or other exhibits that often contain extremely useful information detailing future action.

Combined, this information can give individual💃 investors a lot of insight into what the hedge fund is attempting to do with its investment and whether it will be attempting to take over the company or is simply looking for a good investment.

Step 3: Deciphering a Hedge Fund's Activity

The "Purpose of Transaction" section of the 13D filing with the SEC describes exactly what the hedge fund is planning to do. There are two dif♊ferent types of demands that hedge funds make in these letters:

1. Demands to the Board: These are specific requests made to the board of directors demanding certain changes. These may include management replacements, 澳洲幸运5开奖号码历史查询:mergers or acquisitions, 澳洲幸运5开奖号码历史查询:capital structure changes, 澳洲幸运5开奖号码历史查询:disbursement of 澳洲幸运5开奖号码历史查询:cash reserves and other items.

2. Appeals to Shareholders: These are situations in which the hedge fund is looking to take over the company via a proxy battle. This is a situation that requires shareholders to vote to sign-on the hedge funds nominees instead of the company's incumbent directors. Activist hedge funds engage in many activities to unlock 澳洲幸运5开奖号码历史查询:shareholder value, including:

• Management replacements or changes
• Potential mergers or acquisitions
• Capital structure changes
• Expenditure or 澳洲幸运5开奖号码历史查询:executive compensation cuts
• 澳洲幸运5开奖号码历史查询:Disbursements of cash reserves to shareholders via 澳洲幸运5开奖号码历史查询:dividends, buybacks, etc.

Altogether, this section of the 13D fili🦋ng gives you all the information you need to know about the situation. Most of the time, these hedge funds have nothing to hide because they want investors to understand how management is failing.

Step 4: Acting on the Information

There are two types of opportunities that activist hedge funds create: (1) long-term 澳洲幸运5开奖号码历史查询:turnarounds or (2) short-term 澳洲幸运5开奖号码历史查询:exit strategies. Obviously, the short-term actions are most advantageous to those following hedge fund activities because they provide the largest returns in the shortest amount of time. This is particularly true for buyouts because they always happen 澳洲幸运5开奖号码历史查询:at a premium to the 澳洲幸运5开奖号码历史查询:market price. Her♏e are some common he♒dge fund activities and their general payoff times:

Short-Term Activities:

• Sale of the company
• Liquidation of assets
• 澳洲幸运5开奖号码历史查询:Special dividends

Medium-Term Activities:

• Replacing board members
• Firing management

Long-Term Activities:

• Share buyback programs
• Small dividends
• Capital structure changes

It is important to consider all of these things before following a hedge fund. Remember that in almost all cases, a fund will have averaged in at lower prices than yours, causing the potential for a large difference in 澳洲幸运5开奖号码历史查询:breakeven points.

The Bottom Line

Although investing alongside hedge funds isn't a guaranteed way to make money, it is a great way to find opportunities. By carefully analyzing the terms of the deals and proposals, it is possible for savvy investors to find attractive short-term and long-term investment opportunities.