Hedge fund seeding with fees-for-guarantee swaps
Feng, Yun and Huang, Binghua and Zhang, Hai (2019) Hedge fund seeding with fees-for-guarantee swaps. European Journal of Finance, 25 (1). pp. 16-34. ISSN 1351-847X (https://doi.org/10.1080/1351847X.2018.1456475)
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Abstract
This paper introduces a new instrument in the context of hedge fund seeding, which we call fees-for-guarantee swap, with the aim of alleviating the early-stage funds (ESF)managers’financial constraint caused by severe asymmetric information between investors and managers. The swap plays a role in enhancing the ESFs manager’s credibility by swapping part of her fees for an insurance on the behalf of seeding investors, whom would be fully refunded once the fund defaults. We set up a dynamic continuous-time framework within which closed-form prices for seed capital, guarantee costs and other claims have been derived. Our numerical findings indicate that incentive compensations, managerial ownership and hedge funds liquidation risks not only inhibit ESFs managers’ risk-shifting incentive but align interests among ESFs manager, seeder and insurer as well.
ORCID iDs
Feng, Yun, Huang, Binghua and Zhang, Hai ORCID: https://orcid.org/0000-0001-9319-346X;-
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Item type: Article ID code: 63700 Dates: DateEvent2 January 2019Published3 April 2018Published Online19 March 2018AcceptedNotes: This is an Accepted Manuscript of an article published by Taylor & Francis in European Journal of Finance on 03/04/2018, available online: http://www.tandfonline.com/10.1080/1351847X.2018.1456475. Subjects: Social Sciences > Industries. Land use. Labor > Risk Management
Social Sciences > FinanceDepartment: Strathclyde Business School > Accounting and Finance Depositing user: Pure Administrator Date deposited: 12 Apr 2018 09:58 Last modified: 21 Oct 2024 00:23 URI: https://strathprints.strath.ac.uk/id/eprint/63700