Hedge Fund Investing: A Practical Approach to Understanding Investor Motivation, Manager Profits, and Fund Performance

Organizational Structure

Many of the functional roles in a fixed-income or credit fund are similar to those found in long and short equity funds, although the underlying products, market structure, terminology, and conventions are all very different. The basic organization model for a fixed-income or credit-oriented firm is a strong CEO and CIO surrounded by research teams, portfolio managers, and traders, supported by an operations, treasury, accounting, customer service, and investor relations platform.

Some fixed-income funds may also look like global macro funds in that they may have a macro desk or a dedicated macro research team that informs the arbitrage trading and allows the firm to take both relative value and direction bets in interest rates, inflations, or currencies. The typical fixed-income arbitrage fund is launched by professionals who have treasury or proprietary trading expertise from working directly in the banking sector or at another fund. Funds generate a large volume of trading across a wide variety of similar instruments traded on different exchanges. It is very common for fixed-income funds to have a dedicated repo desk internally at the fund. The repo desk is intended to allow the fund to get a wide range of quotes to finance or short-sell benchmark government bonds and help the firm create its own yield curves to assess arbitrage opportunities between the cash market and the futures or swap market. Staffing of many of the critical functions needed to ...