Synopsis of Hedge Fund Strategies

It is important to understand the differences between the various hedge fund strategies because all hedge funds are not the same investment returns, volatility, and risk vary enormously among the different hedge fund strategies. Some strategies which are not correlated to equity markets are able to deliver consistent returns with extremely low risk of loss, while others may be as or more volatile than mutual funds. A successful fund of funds recognizes these differences and blends various strategies and asset classes together to create more stable long-term investment returns than any of the individual funds.

Key Characteristics of Hedge Funds

• Many, but not all, hedge fund strategies tend to hedge against downturns in the markets being traded.
  
  
• Hedge funds are flexible in their investment options (can use short selling, leverage, derivatives such as puts, calls, options, futures, etc.).
  
  
• Hedge funds benefit by heavily weighting hedge fund managers’ remuneration towards performance incentives, thus attracting the best brains in the investment business.