The past 1-2 years have been trying times for hedge funds. The turmoil following the collapse of Lehman in the autumn of 2008 led to a dry-up of liquidity in almost all parts of the financial system, which made it very difficult for hedge funds to use investment tools such as leverage and short-selling. However, market conditions are now improving, and the best funds are adapting to the new post-crisis reality of simpler and more low-cost strategies. Many investors have also been inspired by the modus operandi of hedge funds and are now increasingly implementing replicating strategies and "clone" funds.

The purpose of this seminar is to give you an in-depth understanding of hedge funds, of the risk and return characteristics of their investment strategies, and of techniques for constructing and managing portfolios of hedge fund investments and replicating strategies.

We start with a look at the hedge fund industry and its major players and discuss recent market developments, including the regulatory changes that are on their way. We then take a closer look at "institutional" aspects of running such funds. We explain how a hedge fund is set up and look at the role of the "prime brokers" as providers of services such as financing, securities lending, clearing and settlement of transactions etc. We also take a closer look at the toolkit of the hedge fund manager, including the use of short-selling and leverage, and we discuss the challenges of using these tools during a liquidity crisis. We also explain and demonstrate how these tools can be used directly by investors in "hedge fund replicating strategies".

We then explore in more detail the investment strategies of the different types of hedge funds. We start with market neutral strategies such as "pairs trading" and then move over "convertible arbitrage", "fixed income arbitrage" and "event-driven" towards the more directional types of funds such as "global macro", "dedicated short", "emerging markets" and "CTAs". In each case we carefully explain the performance profile and the special risks of the strategy and how the strategies can be implemented as "replicating" strategies. We illustrate using practical case studies and computer simulations.

Further, we explain how "funds-of-hedge-funds" operate and discuss the advantages and disadvantages of investing through such funds. We also explain how hedge fund indexes are constructed and how to invest in so-called "investable indexes" as an alternative to investing through funds of funds.

Finally, we give a thorough explanation of how hedge fund investments and replicating strategies can be managed in the context of a portfolio. We present and demonstrate traditional and alternative optimization techniques for constructing optimal portfolios and explain how stress tests and "extreme VaR" analysis can be performed to assess the "tail" and liquidity risks of hedge fund investing.