Industry Overview
A Brief History
The Hedge Fund industry has grown at a ferocious pace in the last decade, from as few as 300 funds in 1990 to more than 9000 today. The funds have become highly visible in markets and press, and are today estimated to manage up to 1.3 trillion in capital.
Hedge Funds, like other alternative investments such as real estate and private equity, are thought to provide returns that are uncorrelated with traditional investments. This has attracted an increasing number of individual and institutional investors who have realized that investing in Hedge Funds can further diversify their portfolios and produce higher returns at lower risk.
Hedge Fund Strategies
Employing vastly different investment strategies and approaches to risk-management, hedge funds are defined by their structural characteristics, rather than their "hedged" nature.
Hedge funds are primarily organized as private partnerships to provide maximum flexibility in constructing a portfolio. Hedge funds can take both long and short positions, make concentrated investments, use leverage, use derivatives, and invest in many markets. This is in sharp contrast to mutual funds, which are highly regulated and do not have the same breadth of investment instruments at their disposal. In addition, most hedge fund managers commit a portion of their wealth to the funds in order to align their interest with that of other investors.Thus, the objectives of managers and investors are the same, and the nature of the relationship is one of true partnership.
