 Welcome back everyone. So this week, we're going to look at hedge funds and private equities. Also, we're going to have a look at venture capitals. We will understand what each of these organizations do and how do they make decisions on their investments, what kind of organizations they invest in. So without further ado, let's get started. First thing, we're going to look at the significance of hedge funds. After this, we'll learn a little bit more about private equity funds and then we'll move on from there into venture capitals. And then finally, we'll start learning about the different strategies that they use, the different investment strategies that all these organizations use. So first things first, hedge funds. What are hedge funds? Hedge funds are basically financial institutions where money that being pulled from different investors. So think about it as a big pool of money by different investors who have put it into this organization. Now, within this organization, the money pool will be taken to be invested in specific investments. Now, the whole purpose of this kind of institution is to maximize the profits for investors, for the people who pulled in their money into this organization, and at the same time to reduce their exposure to risk. Now, normally these kinds of institutions attract high net worth individuals or specific type of investors. So it's not accessible to everyone. They have to be accredited and they could either be institutional investors or again, as we said, high net worth investors, individuals. Now, when we look at the investments or the type of investments that take place within this organization or within this kind of financial institution, their investments are normally regarded as a liquid and the reason being because any kind of investment that is being pulled by the different investors who put their money into hedge funds, they would have to tie it up for a particular period of time, normally for a year. So once they deposit the money for a year, they are unable to withdraw money or to withdraw the funds. And because of that, they're considered as a liquid investments because they are locked for a specific period of time. Now, these organizations, these financial institutions normally make their investment decisions, their investments for the short term. So they're not looking here for long term investments like other institutions, like other financial institutions. What they're more concerned about is making a quick profit on or a quick return on investment on the investment that they're making and then exiting the particular institutions that they've invested within. And if we're looking at private equity funds on the other hand, now private equity funds are also a pool of money. So a pool of different investors pulling out all their pulling out specific amount of money from each of these investors. And this kind of money, rather than being in this kind of money is actually being invested into companies for a specific purpose. And this purpose is to maintain the private ownership of these companies that they are being invested within. So whichever company is that the equity funds that the equity funds invest in, they have the goal of keeping that company that they invested within as a private institution. And sometimes they may buy publicly traded companies. So companies that have had their shares issued for the public, they would take it back again. So they will buy all the stocks or all the shares of these publicly traded companies and transform it into a privately held organization. So the whole purpose of private equity funds is to invest in institutions and to keep this is to keep these institutions, whether they were previously private institutions or publicly traded institutions to make them privately owned. So these financial these private equity funds basically own private organizations in the end. So this is their end goal. Now, their aim is behind all of this is to increase the value of the portfolio that they have so they don't only invest in one organization or in one company they invest in multiple companies and multiple organizations. And because of that, what they do they want to increase the portfolio of each of the companies that they own by improving their operations by improving their finances by basically transforming these companies and making them profitable. Because again in the end goal is to generate profit or return an investment for these investors who have invested in the private equity funds. The types as you can as you can imagine the type of investments that are involved in these kinds of financial institutions are not short term. They are long term because if you want to think about it, you will see that to transform an organization to make that organization into a profitable institution. And sometimes it might take some time. So this time and this dedication is basically what is required to transform the organization that is being invested within and to make it more profitable. Think about Toys R Us, for example, Toys R Us was one of the organizations that were that was acquired by a private equity fund. Toys R Us was being transformed into possibly becoming more profitable. Of course, we all know the story how things ended up. But these are the kind of transactions that we normally look into. Now if we want to look at venture capitals on the other hand, venture capital laws are also financial institutions, but the difference here is that these financial institutions have either institutional investors or high net worth individuals again same thing. What they look at or what they invest within are into new businesses, new startups, new companies that are popping up, or they invest in small businesses. Of course, the portfolio of these businesses or the potential that they're looking for or the reason that they're investing within these organizations, whether startups or small businesses is because in the end, they believe that these investments or these companies are going to have a high return on investment. So their potential for growth is actually quite high. And at the same time, they want to, they want, it is their interest for the investment to grow. Because in the end, what they want to do is after the growth of the investment or after it reaches a particular limit that they set for themselves for this particular company. Their aim is to exit from their investment or from this kind of investment, either through maybe transforming the company that they've invested into a company that has its share traded for the public through IPOs, for example, or maybe through selling the companies that they invested within two other private institutions, maybe to other financial institutions or maybe to private individuals. As we saw together, these are the different financial institutions or some of the financial institutions that invest within different companies or help generate funds for organizations to get them to finance their operations or to get them to transform their current status. All these different financial institutions that we looked at today are regarded mostly as equity financing options, not as debt financing options. And sometimes you may find that venture capitals may offer their services or may offer services that are akin to debt financing, but again, these are rare instances. Again, it depends on what the organization that they're investing with them, what they perceive their value to be in the future, or what they perceive the needs for this before the institution that they're investing with them would require. Now, if having seen these different financial institutions, having seen what these financial institutions look like and how they get their funds and how they get their money from where they get their money from and where they invest their investments within. Let's talk a little about the different strategies, the different investment strategies that they have. One of the very first types or strategies, investment strategies that are either deployed by these organizations, by the institutions, the financial institutions that we looked into, or even by individuals is what we refer to as value investing. Now, value investing means that the investor would look at stocks or stocks that are actually trading for less than the intrinsic value. And what that means is that the investors think that it will have a higher value in the future. And so what they're looking for or what they aiming for is to invest in a low perceived stock so that when the prices get high or when the true value of the stock is reflected in the future, it could be in the very near future. The stocks will be sold by the investors, and this is how they will make their return on investment and how they will make their profit. So the second strategy that is being deployed by investors is what is referred to as momentum investing. Now, what momentum investing is all about is that you look at your own portfolio as an investor. And what you do, you see those stocks that are underperforming and you sell them. And what you do, then you buy stocks that are performing higher. So this is the kind of strategy that you follow. You follow the momentum. What is the market looking for? On the other hand, you have what is referred to as growth investing. Growth investing is all about investing in organizations that are small now. But as investor, you perceive that the value of these investments or these organizations are going to be higher than the market's average. And so what you do, you invest now as their value is lower than what you think is going to be in the future. And then once it reach that limit that you perceive is basically above the market average, as an investor, then you will sell it and make your return on investment that way. And also you will make your profit that way. Another strategy that many investors are looking for. And as you can see, as you can understand today, it's gaining a lot of momentum as well. Is what we call social responsible investing. Now, socially responsible investing is all about investing in organizations that will generate the financial returns that you're expecting. But at the same time, you believe that these organizations are going to influence change, positive change for the environment, for the society they're operating within. And there are now measurements and there are now funds and baskets for investments that are referred to as ESG investments. Or environmental social and governance baskets of investments that investors are more interested in. So there are specific ratings now for the institutions they have specific ESG ratings. And as such, you'll find investors looking at these ratings and making their decisions based on the ratings of these institutions that they are looking to invest within. On the other hand, you have something that we refer to as a small cap investing. A small cap investing strategy is all about looking at the small market capitalization. So you invest in stocks that have a small market capitalization by nature. Now, on the other hand, you have income investing. Now, what income investing is all about is basically growing your portfolio, building a good portfolio, a solid portfolio with different companies, different organizations or different types of investments that you have within this portfolio. And your end goal from building that portfolio or this strong portfolio is to generate continuous regular income for you as an investor. Now, if we look at fixed income arbitrage, now this is an investment strategy that normally is applied by equity fund by private equity funds and also by by other financial institutions. Now, what it's all about, so when you do when you deploy a fixed income arbitrage, this basically means that as an institution what you're aiming for is to generate returns through looking at the anomalies at the price anomalies in a fixed income security. If we're talking then about another strategy, it's basically the convertible arbitrage. Again, these are type of strategies that are mostly applied by financial institutions like equity, like private equity funds and like hedge funds. And in a convertible arbitrage, here what you're looking for is to generate profits on the price of on the price discrepancies of a particular convertible security. Finally, you have something that is very much reserved in most cases for private equity funds. And this is basically what we refer to as leverage buyouts. Now, leverage buyouts are a strategy that is used by private equity funds to acquire an institution to acquire a company. And the way that this company is acquired is basically through using debt financing. Now, the way that this works, so how they use that financing is basically through taking a ratio of debt financing versus equity financing. So these private equity funds, what they will do, they will invest specific portion. So maybe that will contribute anywhere from 10 to 40% of the financing themselves as an equity financing. And then what they will do, they will generate the remainder of the funds that they need through that financing options. So these are basically, and this is basically an overview of all the different strategies investing strategies that are deployed either by private investors by individuals or by financial institutions with this. Let's try to end up with something and let's see if what you can come up with for the next week. Do a little research and try to look at the portfolio of companies or the different institutions that you think private equity funds, hedge funds and venture capitals invest in. How do you think these financial institutions make their decision to invest in a particular company or not? What do they look for? What are the things, what are the things that they, what are the kind of boxes they need to take for these institutions before they make a decision on investing in a particular institution or not. With this note, I'm going to leave you for next week, and I look forward to seeing you.