Define a Hedge Fund

Below are key characteristics that define a hedge fund. Also see What is a hedge fund section.

How to define a hedge fund?

Hedge funds utilize a variety of financial instruments and techniques to:

• reduce risk,
• enhance returns and
• minimize the correlation with equity and bond markets.

Hedge Funds investment options: Many hedge funds are flexible in their investment options (can use short selling, leverage, derivatives such as puts, calls, options, futures, etc.).

Hedge Funds returns: Hedge funds vary enormously in terms of investment returns, volatility and risk. Many, but not all, hedge fund strategies tend to hedge against downturns in the markets being traded.

Hedge Funds vs stock market: Many hedge funds have the ability to deliver non stock market correlated returns.

Hedge Funds investment objectives: Many hedge funds have as an objective consistency of investment returns and capital preservation rather than magnitude of portfolio returns.

Hedge Funds managers: Most hedge funds are managed by experienced investment professionals who are generally disciplined and diligent.

Hedge Funds volatility: Pension funds, endowments, insurance companies, private banks and high net worth individuals and families invest in hedge funds to minimize overall portfolio investment volatility and enhance investment returns.

Hedge Funds capital restrictions: Many hedge fund strategies, particularly arbitrage strategies, are limited as to how much capital they can successfully employ before returns diminish. As a result, many successful hedge fund managers limit the amount of capital they will accept.

Hedge Funds specialists: Most hedge fund managers are highly specialized and trade only within their area of expertise and competitive advantage.

Hedge Funds management: Hedge fund managers are generally highly professional, disciplined and diligent.

Hedge Funds advantage: Hedge funds benefit by heavily weighting hedge fund managers remuneration towards performance incentives, thus attracting the best brains in the investment business. In addition, hedge fund managers usually have their own money invested in their fund.