All About Hedge Funds explains how any investor can take advantage of the high-potential returns of hedge funds while incorporating safeguards to limit their volatility and risk. This clear-headed, commonsense guide tells investors: What hedge funds are and what they are not, Four key hedge fund strategies, How to incorporate hedge funds into an existing portfolio & Types of risk involved in hedge fund investing.
Hedge funds represent a distinctive investment style. Their investment objectives, and their strategies, are very different from more traditional funds. They emphasize absolute return rather than relative return, and they use a very wide range of investment techniques including leverage, short selling, and other hedging strategies in the attempt to achieve their objectives.
Hedge funds also represent a distinctive investment culture. Hedge fund management firms tend to be small firms dominated by one or two key investment people. The hedge fund culture is part of the “smaller-is-better” culture. In addition, hedge funds give a new twist to the relationship between the money manager and the client. The client does not merely hire the manager. Instead, the client and the manager become partners, coinvesting in situations that the manager finds attractive.
Finally, hedge funds often use distinctive “delivery systems” to make their strategies available to investors. The hedge fund could take the form of a limited partnership, an offshore fund, a commodity pool, or a specialized kind of separate account. Hedge funds do not typically use the mutual fund structure since this structure does not give the hedge fund manager enough freedom.
This book is written for two main types of reader. First, the book should be of interest to “the general reader”: the intelligent layperson who wants to know more about hedge funds. Given the increasing amount of attention being paid to hedge funds and their growing role in the financial world, an informed citizen needs to know more than what can be learned from newspapers. Second, the book should be helpful to the individual who is thinking about making an investment in a hedge fund, or a portfolio of hedge funds.
- THE HISTORICAL AND INSTITUTIONAL CONTEXT
- HEDGE FUNDS, ACTIVE MANAGEMENT, AND EFFICIENT MARKETS
- THE TOOLS OF THE TRADE
- SOME OPERATIONAL ISSUES
- THE MENU OF HEDGE FUND STRATEGIES