Types of Hedge Funds

Estimates on the size of the hedge fund industry vary widely. Hedge funds move very fast and some hedge funds dissolve themselves and then set up a new fund under a new name but essentially with the same investment team. Estimated total number of hedge funds range from 8,350 to 9,000+ worldwide. Hedge funds can be classified according to their investment strategies, of which there are 14 distinct types. Each type offers a different degree of risk and return. A hedge fund investor will do well to know first a hedge fund’s strategy to suit his own investment objectives. In this regard, no two hedge funds are identical since expected investment returns, volatility and even risk management techniques vary greatly. Only commonly used hedge fund investment strategies will be discussed here. The 14 investment strategies are discussed briefly in the next section as they jive with the risk tolerance (risk profiles) of each particular investor type. In a sense, if you know an investor’s tolerance for investment risk, you will be able to guess the most probable investment strategy he will pursue. Most hedge funds today are designed to suit their investors’ preferences rather than the other way around.


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