Some Features of Hedge Funds
“Hedge funds were devised long back so that the assets could be carefully chosen. Even if there is a fall in the price of one asset, others compensate for it. ”
Hedge funds have been devised to lessen the risk of investing. The risk is lowered by the strategy of buying assets from a variety of areas. Now you would ask what does this mean and how does it lower the risk?The answer is in the choice of the assets. Hedge funds were devised long back so that the assets could be carefully chosen. Even if there is a fall in the price of one asset, others compensate for it.
There art various basic elements in the hedge funds. One such element is the ‘style’. Hedge fund may be of a ‘global macro’ style or it may follow the ‘relative value’ style. To put in plain terms the word ‘style’ refers to the strategies that are used to assign different investment percentages to different assets.
Then comes the ‘market’. The market of a hedge fund is simply the class of assets that are being dealt with. The market of a hedge fund may be stocks, currency, commodities etc.
Similarly, the word ‘exposure’ is also used very commonly in case of hedge funds. It denotes the way in which you expose your investments to the market. You may keep them neutral or make them choose a particular direction. It all depends upon the market forces and other economic factors prevailing at a particular time.
Then we have the ‘method’ regarding the hedge funds. This is a bit tricky term. It means that either you choose your assets qualitatively or you choose them in a quantitative way. When a hedge fund manager himself decides the assets that are to be purchased, it is called the qualitative method of hedge fund investment.
On he other hand if the manager uses some numerical methods or other computation aids to decide about the assets, it is known as quantitative method of hedge fund investment. Both the methods have their pros and cons and many a time it’s a matter of chance that a particular method reaps the maximum benefits.
The present time is a good one for investments in hedge funds because the markets are still very uncertain and alternative methods of investment (shares are considered too risky) are considered to be more safe and lucrative.
Author - DeeKay
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