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HEDGE FUNDS
Hedge funds provide investors
the optimal vehicle to generate superior risk adjusted returns across most securities
and financial markets. All securities suffer from varying degrees of pricing inefficiency
from which skilled investment managers pursuing alternative investment strategies
can benefit.
Free from the constraints placed
on traditional long-only managers, such as restrictions on shorting, use of leverage
and combinations of securities that can be held in a given portfolio, hedge fund
managers can access a much broader opportunity set. Returns to hedge fund managers
are thus typically less dependent on market direction and more dependent on the
managers' skill at identifying and taking advantage of market anomalies.The result
is an array of diverse investment strategies each of which offers unique risk-return
and cross correlation characteristics. Most importantly, many alternative investment
strategies offer investors returns characterized by limited downside volatility
and low correlation to broader equity and fixed income markets.
FUNDS OF HEDGE FUNDS
By combining multiple hedge
fund managers pursuing different strategies into a single portfolio, funds of hedge
funds can construct unusually robust portfolios offering attractive risk-adjusted
returns. Such programs minimize not only general market risk but also risks arising
from allocations to any one single manager or strategy. Multi-manager hedge fund
programs thus provide investors with a sound turnkey solution for accessing the
hedge fund universe.
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