Introduction
In the past three parts of our hedge fund basics series, we’ve looked at how hedge funds can reduce performance volatility and provide portfolio diversification. But looking at hedge funds as a whole fails to recognise a crucial truth: hedge funds are not a homogenous group. There is huge performance dispersion in an industry of around 3,000 funds, both across hedge fund strategies and between individual hedge funds.
In the final part in our series, we will examine what investors look for when selecting hedge funds. Before investing in a hedge fund, investors need to consider the role they want their hedge fund allocation to play in their portfolio and use this to inform their fund and strategy selection. Hedge fund strategies and quality of management vary between hedge funds, and this impacts their ability to enhance returns and protect portfolios during equity market downturns.
Investors looking to hedge funds to provide diversification and protection in times of market weakness need to carefully consider strategy selection.
