Wednesday, May 6, 2020
Hedge Fund Compliance and Risk Management
Question: Discuss about the Hedge Fund Compliance and Risk Management. Answer: Introduction The company that we are going to analyze is called Samson Oil and gas company. Samson oil; and gas company is a gas mining company that is listed in the Australian stock exchange. The objectives of a chief finance officer varies depending on the company ,however, there are fundamental roles that a chief finance officer does apart from managing the companys finances. The main aim of this officer is to ensure that he makes good decisions to maximize shareholders wealth being a member of the senior management of Samson Oil and gas company (Bahbah, 2009). The CFO has got to be a qualified financial analyst who has done all the necessary courses to enhance his competence on this job. For a company that is affected by foreign exchange rates, there is need to have a CFO who understands all the aspects of the companys finances (Gregoriou, 2006). Hence the position of a CFO cannot be over emphasized in the contemporary world. There are some significant differences between small and large businesses regarding their form of ownership, Samson oil and gas Ltd is a listed company and has shareholders who own a piece of the company. These differences make it necessary to modify the principles of financial management to be applied in the area of Ã ¢Ã¢â ¬Ã¢â¬ ¹Ã ¢Ã¢â ¬Ã¢â¬ ¹small businesses as well as big companies such as Samson oil and gas Ltd (Gregoriou, 2006). From an initial conception as a set of simple guidelines that remained a mere knowledge of markets and institutions that made up administrative tasks, the finance function has been increasingly involving in the management of the company, from, first, the analysis of the investments decided by the management of the company; then the search for the necessary financial resources and cheaper sources of capital to deal with these investment projects (Guizot, 2007). Studies on optimal financial structure, corporate liquidity, increased financial reporting and the establishment of the budget and financial planning have been other tasks that has been charging the finance department of companies. The role of the finance function within the company has evolved over time, especially as economic structures have increased their complexity and size of the companies has increased. Thus, we see how the role of the finance function has evolved to blend into the objective of the company, which is none other than to increase their value, that is, to maximize shareholder wealth (Hillier, 2010).To do this, it is necessary that the financial department take appropriate decisions leading to the achievement of that objective, what is concrete, simply, in making investment decisions on capital budget on the project or projects convenience for the company taking into account the characteristics of risk and return of each of them (Helbk, Lindest and McLellan, 2010). funding decisions in the sense of choosing between financial sources, the one available or a combination of those, that is most interesting for the company; and finally, a decision on the policy best suited to dividends carry out-not to forget the distinction between own sources of funding and others- to achieve the business objective: to maximize the value of the company and thus wealth of shareholders (Guizo t, 2007). The CFO, is responsible for the finance function in the company therefore has assigned a number of functions, all related to investment-financing duality (Moles, 2011). Role of a CFO The role of a Chief Finance officer is consistently developing due to the need for firms to become more competitive financially , in order to achieve improved economic performance as well as creating value for shareholders .It is asserted that the objective is usually to increase the financial value of the organization , he makes investment , dividend and financing decisions for the company ( Nikbakht and Groppelli , n .d . ) . Making financial projections First , the CFO makes financial projections and also must determine the cost that may make an incorrect projection in product sales or liquidity in the company .It is crucial that the CFO becomes alert to the global economy and figure out how the organization may be impacted by changes in international markets as well as effects on exchange rates , devaluation and interest charges ( Ross , Westerfield and Jordan , 2007 ) . Formulating dividend policies The CFO also establishes the policies of dividends payments that fit the organization in the long run , planning whether to distribute interim profits realized or else apply a continuous growth policy and pay at year end. The CFO persuades stakeholders on a policy that serves the organization best and increase the profitability for the owners of the company in the long term ,This is importatnt since it is associated with good policies on liquidity management of the organization , portfolio as well as inventories etc ( Nelken , 2006 ) . financial decisions in the company are made by the Chief financial officer ( Shiller , 2012 ) . When sector competitiveness raises pressure to firms , it results in the need to assess how many functional aspects of business may be developed and how to use new indicators that apply not only finance but additionally provide info about other factors that may influence the company, This is the work of a chief finance officer to evaluate all the areas of the business (Ross, Westerfield and Jordan, 2000). Making investment and financing decisions To conclude we must make it clear that the Chief finance officer should not focus solely to compliance with one of the above functions, but must worry about meeting the three together. The Chief finance officer should worry because through all the decisions taken within the company; in this way, regardless of fulfilling its objective function is to maximize the wealth of shareholders, the company can keep daily for society to give more value and that the same employees are satisfied of working within the same. To fulfill their objective function must be supported mainly three types of decisions are investment decisions, financing decisions and dividend decisions (Smart, Megginson and Gitman, 2004).The Chief finance officer must have constant knowledge of the economic situation and trends in the world economy; he should be a good reader of newspapers and magazines. For Samson oil and gas Ltd, the CFO, should know the trend of the exchange rate and should study new situations, such as the case of a change in the pattern of development of a country.The Chief finance officer, given his interaction with all areas and how this affects the global market. How responsibility of CFO can impact objective of the company Stability and adaptation to the environment is an objectives that each company should have. The responsibility of a CFO is to stabilize the company in an economy that has a lot of ups and downs. If the company wants to grow or simply survive in the market in which it operates, it must be prepared to face the changes that may occur in the context where it operates. Hence the CFO has a responsibility to steer the company in a path that will ensure that the company is stable. Another objective of a company is to seek and increase the loyalty of its customers in markets where it already operates before expanding to other geographical areas or other areas of business. However, growth is the natural tendency of any company. The CFO should come up with policies and strategies to ensure that the company increases its market share and has customer loyalty (Nikbakht and Groppelli, n.d.). There is also the objective of ensuring that there is social and ethical responsibility towards the groups with which relate the management relate to with directly such as (owners, employees, customers, suppliers, public sector unions, etc.), to society and to the environment in which they operate. This is one of the objectives that a CFO should ensure that all the stakeholders are treated well. The Chief finance officer is the one who represents the interests of shareholders and make decisions on their behalf, with a goal of financial management make money or add value to the company. The main objective of this company is to maximize profits hence the CFO hams got a very big role to play in ensuring that the decisions that they make will increase shareholders returns. If the company want to make a profit this year to be taken into account actions such as deferring maintenance, keep the lower limits inventories and take measures to reduce costs .Another objective of the company is to minimize cost, the CFO is responsible for creating operations that reduce wastes and increase efficiency in the company thus he is very important for Samson oil and gas Ltd and ensures that the company incurs very minimal costs (Moles, 2011).. One of the main activities of the Chief finance officer is financial planning; in which are concentrated the three main tasks of the Chief finance officer which are; Investement decisions, finance decisions and credit decisions. It can be concluded that the role of the Chief finance officer is expanding as well as growing the market share of the organization , this due to the significant business adjustments leading organizations to evaluate in a better way to manipulate its financial statements , enhancing its financial projecti ons , making use of capital policies work and also good credit management . Also, the CFO should analyze capital costs compared to profitability and its equity and the use of all the financial methods necessary to safeguard the companys interest in the market ( Moles , 2011 ) . Efficient market hypothesis The efficient markets hypothesis wasformulatedby Professor Eugene Fama of theInstitutionof Business at the Chicago University.Efficient market hypothesisaffirmsthatmonetarymarket segmentsareeffectivewith regards totheinfotheydeal with,this impliesassetcostscurrently have internalizedinformation of the market.Beatingthe marketby making use ofjust about anyinformation that the market currentlyknows is not possible according to this hypothesis. . Theinformationrefers toany kind ofnewsthat maydetermine theequitiesprice is random walk which isimpossibletodiscoverin advance (Ross, 2010) .Onceeconomists of behavioralfinancialemerged, they pushed this theory.Based ontheconceptof efficient marketsequitiesusuallythey arebought and soldatreasonablevalue ,which makes itdifficultforforex investorsto buy undervaluedequitiesor offersecuritiesatprices that are higher ,thereforecould bedifficultto beat theindustryby means ofa selectionapproachactionsliketechnical analysis , and thesolewayby whichthe investorwill be able to earngreaterreturnsis simply bypurchasing actionsbearingan increased levelof risk.Beyondincreasingutility ,effectivemarketsconceptrequires thatmarket participantshavelogicalexpectationsso whennewinfobecomes investors correctlyupdate their expectations. Role of a fund manager The other role of a fund manager is Carrying fund accounting and discretionary management of investment portfolios, including the pension fund. Other functions include obligations of the fund Investment Consulting, rights and, as well as the risk policy, quantification of positions, and also informing the investor on a regular basis. Another role of a fund manager is to manage the fund where the owners should be able to get profits and also investors who put their capital in this structure seeking to optimize their investments involved (Ross, 2010). The other role of a fund manager is Carrying fund accounting and discretionary management of investment portfolios, including the pension fund.The fund manager also carries out the investments of the assets of the fund and reports periodical changes in investment policy and the fees charged to participants.Other functions include Investment Consulting, quantification of positions, rights and obligations of the fund, as well as the risk po licy, and also informing the investor on a regular basis (Ross, Westerfield and Jordan, 2007). The fund manager also Provides Information about policies transfers between funds and Information about account adjustments result from financial transactions in securities In conclusion the fund manager should not select portfolio with a pin since it needs since the pension manager should select the right mix of investments to get profits. The other role of a fund manager is discretionary management of investment portfolios, Carrying fund accounting of the pension fund. Other functions include Investment Consulting, quantification of positions, rights and obligations of the fund, as well as the risk policy, and also informing the investor on a regular basis References Bahbah, B. (2009). Wealth management in any market. Hoboken, N.J.: John Wiley Sons. Gregoriou, G. (2006). Funds of hedge funds. Amsterdam: Butterworth/Heinemann/Elsevier. Guizot, A. (2007). The hedge fund compliance and risk management guide. Hoboken, N.J.: John Wiley Sons. Helbk, M., Lindest, S. and McLellan, B. 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