Facts About the Hedge Fund Industry
* it is estimated to be a $1 trillion industry and growing at about 20% per year with approximately 8350 active hedge funds.
* it includes a variety of investment strategies, some of which use leverage and derivatives while others are more conservative and employ little or no leverage. Many hedge fund strategies seek to reduce market risk specifically by shorting equities or through the use of derivatives.
* Most hedge funds are highly specialized, relying on the specific expertise of the manager or management team.
* Performance of many hedge fund strategies, particularly relative value strategies, is not dependent on the direction of the bond or equity markets — unlike conventional equity or mutual funds (unit trusts), which are generally 100% exposed to market risk.
* 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 fund managers are generally highly professional, disciplined and diligent.
* Their returns over a sustained period of time have outperformed standard equity and bond indexes with less volatility and less risk of loss than equities.
* Beyond the averages, there are some truly outstanding performers.
* Investing in hedge funds tends to be favored by more sophisticated investors, including many Swiss and other private banks, that have lived through, and understand the consequences of, major stock market corrections.
* An increasing number of endowments and pension funds allocate assets to hedge funds.
Benefits of Hedge Funds
* Many hedge fund strategies have the ability to generate positive returns in both rising and falling equity and bond markets.
* Inclusion of hedge funds in a balanced portfolio reduces overall portfolio risk and volatility and increases returns.
* Huge variety of hedge fund investment styles – many uncorrelated with each other – provides investors with a wide choice of hedge fund strategies to meet their investment objectives.
* Academic research proves hedge funds have higher returns and lower overall risk than traditional investment funds.
* Hedge funds provide an ideal long-term investment solution, eliminating the need to correctly time entry and exit from markets.
* Adding hedge funds to an investment portfolio provides diversification not otherwise available in traditional investing.