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The Alter-NATIVE series A primer on hedge funds

A primer on hedge funds

These funds invest in a variety of assets, employing differentiated and often complex investment strategies.
Edelweiss Feature Jul 29, 2017

Hedge funds squarely fall in the purview of alternative investments and can be one of the many diverse assets in which alternative investment funds invest. A hedge fund can be defined as an alternative investment vehicle that pools capital from accredited or institutional investors and invests in a variety of assets, employing differentiated and often complex investment strategies. First created way back in 1949, the popularity of hedge funds has waxed and waned over the years. Their ability to generate alpha, albeit with a larger degree of risk, is what attracts investors to this investment vehicle.

How can hedge funds generate alpha?

Use long-short strategies: These strategies involve both buying stocks as well as selling stocks (with the intention of buying them later at a lower price). As opposed to traditional investing, this strategy helps an investment manager harness gains on the long side as well the short side.

Employ leverage: This is an investment technique which essentially means borrowing money to invest in securities. This allows both your gains as well as your risk to get magnified.        

Use a wider range of securities: Compared to mutual funds, hedge funds can invest in a wide range of securities, which not only include traditional securities such as stocks, bonds and commodities, but also real estate and sophisticated investment techniques.

Invest in derivatives: Hedge funds can also invest in derivatives securities, which allow them to buy or sell another security at a specified price and on a later date.

Investors looking to diversify their portfolios and willing to take on a higher degree of risk for the purpose of generating alpha, can choose to gain exposure to hedge funds through investments in an Alternative Asset Fund.

Past performance is not an indication of future performance. Investments in the securities market are subject to market risk.

Please read the Private Placement Memorandum carefully before investing.

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