Hedge funds began as a way to offer investors a balanced – or market-neutral – approach to investing. More recently, however, the methods that hedge funds use to deliver returns have evolved along with the industry.
The hedge fund industry currently manages $2.63 trillion, a record high in assets. While no two hedge funds are identical, funds can be categorized by their strategies. Their decisions and strategies may differ, but hedge funds are united by fundamental goals: portfolio diversification, risk management, and reliable returns over time.
2. Overview
Hedge funds offer qualified investors a unique partnership
and investment opportunity shaped by the strategy and
experience of the fund manager and their team.
While hedge funds first began as a way to offer investors a
balanced - or market-neutral – approach to investing, the
methods for delivering returns has evolved through the
years.
This presentation provides a brief overview of some of the
strategies used by hedge funds in the marketplace today.
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3. How Do Hedge Funds Invest?
Hedge funds manage $2.63 trillion* in global assets.
Hedge funds offer investors many investment options.
No two hedge funds are identical, but funds can be
categorized by their strategies.
Each fund makes different investment decisions but hedge
funds are united by fundamental goals:
• Portfolio Diversification– Prevents over concentration in
specific assets.
• Risk Management– Helps anticipate and avoid volatility
in the marketplace.
• Reliable Returns Over Time – Provides opportunities for
asset growth
*Source: Hedge Fund Research, January 2014
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4. Hedge Fund Strategies
Here are examples of some of the more prevalent hedge fund strategies:
Long/Short Equity Funds: Maintain long and short positions in equity and
equity derivative securities
Global Macro: Analyze market impact of economic variables to develop
investment strategies
Event Driven: Maintain positions in companies currently or prospectively
involved in corporate transactions (mergers, restructurings, financial distress,
tender offers, shareholder buybacks, debt exchanges, security issuance or
other capital structure adjustments)
Relative Value: Maintain positions based on valuation discrepancy in the
relationship between multiple securities
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5. Hedge Fund Strategies (cont’d)
Credit Funds: Invest in fixed income securities, taking large investment
positions and using the ownership stake to participate in the management of a
company
Quantitative Funds: Trades positions based on computer models built to
identify investment opportunities
Multi-Strategy Funds: Utilize a variety of processes to arrive at an investment
decision, including both quantitative and fundamental techniques
Managed Funds Trading (CTAs): Investors trade in these markets using
futures, forwards and options contracts in everything from grains and gold, to
currencies, stock indexes and government bond futures.
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6. Hedge Fund Investing Strategies
The partnership between hedge funds and institutional
investors is expected to continue growing in the coming years.
According to research firm Preqin, institutional investors
expect to add more hedge funds to their portfolio over the next
12 months:
Source: The 2014 Preqin Global Hedge Fund Report
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