Hedge funds V2

Presentation

Hedge funds are investment entities active in the area of hedge funds. Unlike traditional funds, they offer a more flexible and dynamic approach to asset management, aimed at generating absolute performance regardless of market conditions. In this section, we will explore in detail the characteristics, strategies and impact of hedge funds on the financial landscape.

Hedge fund features

The hedge funds are classified as alternative funds, which means that they are not directly correlated to traditional indices such as stocks, bonds, or money markets. Their main objective is to achieve an absolute return, also known as "absolute return" or "total return". This approach gives them greater flexibility compared to traditional funds.

Using Leverage

One of the distinguishing features of hedge funds is their frequent use of high leverage, which involves additional risk taking in relation to the value of the fund's assets. This use of leverage can be achieved through derivatives or borrowing, which amplifies the potential return, but also the level of associated risk.

Investment strategies

Hedge funds are allowed to short-sell, allowing them to speculate down on an asset. Moreover, they have a greater diversity of assets in which to invest than traditional funds, which may include investments in commodities. However, this increased diversification is generally accompanied by higher volatility and less liquidity.

Impact and regulation

Since their emergence, hedge funds have experienced significant growth, representing nearly $4 trillion in investments. Among the major players in this sector are names such as Bridgewater Associates, Man Group, Renaissance Technologies, and Millennium Management. It is worth noting that hedge funds, which were not regulated until a few years ago, are now subject to regulations such as AIFMD in Europe and the Dodd-Frank Act in the United States since 2010.