Hedge Funds

Hedge Funds are pooled investment vehicles that are privately managed and administered by professional investment managers for investors who have experience of alternative, unregulated investments. This investment vehicle is not generally considered suitable for private investors. It is different from another pooled investment fund, the unit trust fund, in that hedge funds are able to sell securities short and buy securities on leverage, which is consistent with their typically short-term and high-risk oriented investment strategy.

A Hedge Fund is a fund that can take both long and short positions, use arbitrage, buy and sell undervalued securities, trade options or bonds, and invest in almost any opportunity in any market where it foresees impressive gains at reduced risk. Hedge fund strategies vary enormously - many hedge against downturns in the markets - especially important today with volatility and anticipation of corrections in overheated stock markets. The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions.

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.).

The first acknowledged hedge fund was launched in 1949, although leverage and short selling had been used long before this time, but not combined in a low risk hedged model. The original model of long/short equities in the same sector has evolved into a multitude of strategies. In the US, hedge funds have been accepted as an asset class for many years and can be found in the portfolios of pension funds, endowments and other conservative investors.

Portfolios of hedge funds, known as funds of funds, have been one of the main ways of accessing hedge funds as they have historically succeeded in reducing overall portfolio volatility and diminishing the risk of selecting an inappropriate individual hedge fund .


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