Hedge Funds: Conclusion
  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. Green Fund

    A mutual fund or other investment vehicle that will only invest ...
  2. PIPE Deal

    Signifying "Private Investment in Public Equity," a PIPE deal ...
  3. Collateralized Mortgage Obligation - CMO

    A type of mortgage-backed security in which principal repayments ...
  4. Sortino Ratio

    A modification of the Sharpe ratio that differentiates harmful ...
  5. Consumer Staples

    Essential products such as food, beverages, tobacco and household ...
  6. Hedge

    Making an investment to reduce the risk of adverse price movements ...
RELATED FAQS
  1. Are hedge funds regulated by FINRA?

    Alternative investment vehicles such as hedge funds offer investors a wider range of possibilities due to certain exceptions ... Read Full Answer >>
  2. What is the purpose of a hedge fund?

    A hedge fund is an official partnership of investors who pool money together to be guided by professional management firms, ... Read Full Answer >>
  3. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  4. What is securitization?

    Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming ... Read Full Answer >>
  5. Are target-date retirement funds good investments?

    The main benefit of target-date retirement funds is convenience. If you really don't want to bother with your retirement ... Read Full Answer >>
  6. Do mutual funds require a demat account?

    A dematerialized account enables electronic transfer of funds. The account is used so an investor does not need to hold the ... Read Full Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  6. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
Trading Center