Hedge Funds: Conclusion
AAA
  1. Hedge Funds: Introduction
  2. Hedge Funds: Structures
  3. Hedge Funds: Strategies
  4. Hedge Funds: Characteristics
  5. Hedge Funds: Performance Measurement
  6. Hedge Funds: Risks
  7. Hedge Funds: Why Choose Hedge Funds?
  8. Hedge Funds: The Due Diligence Process
  9. Hedge Funds: Funds Of Funds
  10. Hedge Funds: Conclusion

Hedge Funds: Conclusion

By Dan Barufaldi

Hedge funds can be complicated investment vehicles that are difficult to understand. This is due partly to the complex strategies they use, and partly to the high level of secrecy inherent in trying to prevent others from copying your investment methodology. It doesn't help the industry that the media usually only showcases hedge funds when there is a huge blow-up or, in a few cases, when a hedge fund has incredibly high returns.

The truth of the matter is that there are hedge funds that generate attractive (relative to expectations) returns, and sometimes the return pattern can be volatile while other times the pattern is very stable. There is a hedge fund to fit the risk/return guidelines of any investor and with proper education, evaluation, and familiarity with them, they become much less intimidating.

This is not to say that anyone should take a hedge fund investment lightly. As I mentioned earlier, there are more risks to a hedge fund than the probability of losing money. For example, there is the risk that an investor may not have access to their cash for extended periods due to lock-ups. And there is a much more subtle risk of a hedge fund having style drift and causing the investor's portfolio allocation to become sub-optimal.

As the industry continues to evolve, we may see additional regulation that may help to assess the merits of hedge fund investing. Or we may see third-party research companies increase their hedge fund coverage to provide opinions to investors. Morningstar has already begun to perform analysis on certain hedge funds and has their own hedge fund database. For now, most of the due diligence needs to be performed by the investor or their investment advisor.

For further reading, check out Hedge Funds Hunt For Upside, Regardless Of The Market and Hedge Funds: Higher Returns Or Just High Fees?


  1. Hedge Funds: Introduction
  2. Hedge Funds: Structures
  3. Hedge Funds: Strategies
  4. Hedge Funds: Characteristics
  5. Hedge Funds: Performance Measurement
  6. Hedge Funds: Risks
  7. Hedge Funds: Why Choose Hedge Funds?
  8. Hedge Funds: The Due Diligence Process
  9. Hedge Funds: Funds Of Funds
  10. Hedge Funds: Conclusion
RELATED TERMS
  1. Systematic Manager

    A manager who adjusts a portfolio’s long and short-term positions ...
  2. Unconstrained Investing

    An investment style that does not require a fund or portfolio ...
  3. Ginnie Mae Pass Through

    A type of investment issued by the Government National Mortgage ...
  4. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  5. Agency Swap Program

    A form of securitization whereby single-family residential mortgages ...
  6. Accelerated Return Note (ARN)

    A short- to medium-term debt instrument that offers a potentially ...
  1. What is the purpose of a hedge fund?

    Find out what a hedge fund is, how it is set up and why it is different than other forms of investment partnerships like ...
  2. What does a high turnover ratio signify for an investment fund?

    Find out more about the turnover ratio, what the turnover ratio measures and what a high turnover ratio indicates about an ...
  3. How are American Depository Receipts (ADRs) priced?

    Understand what American depositary receipts are and how they work, including how the price of ADRs is determined by the ...
  4. What is the difference between passive and active asset management?

    Find out about active asset management, passive asset management, how these strategies are utilized and the differences between ...

You May Also Like

Related Tutorials
  1. Fundamental Analysis

    Ethical Investing Tutorial

  2. Bonds & Fixed Income

    Investing For Safety and Income Tutorial

  3. Mutual Funds & ETFs

    Top ETFs And What They Track: A Tutorial

  4. Retirement

    Analyzing The Best Retirement Plans And Investment Options

  5. Mutual Funds & ETFs

    Guide To ETF Providers

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!