Hedge Fund Performance Evaluation



Strategies of Hedge Fund2

Long/Short Strategies2

Event Driven Strategies3

Tactical Trading Strategies3

Relative Value Strategy3

Risk Associated With Hedge Funds4

Investor Demographics5

Regulatory restrictions vis-à-vis Mutual Funds6

Terminologies of Hedge Fund Industry7

References10

Hedge Fund Performance Evaluation

Strategies of Hedge Fund

These are basically the strategies which are for using superior information which is held by the managers of the hedge funds. Hedge fund managers usually prefer to keep their strategies a secret unless they are no more able to be pursued. They only disclose what will not reveal their actual profitability or potential profitability. There is a classification of various hedge fund strategies (Connor & Lasarte, n.d.).

Hedge funds are modern tools which results better outcome on the investments by making effective use of some specific practices. Efficient hedge fund managers can do miracles on the money deployed through applications of some shrewd tactics which they have expertise on. But all of these strategies are changing time to time. Some of the wide categories are explained below:

Long/Short Strategies

These strategies are useful for separating the risk of individual stocks from the risk of the market (Connor & Lasarte, n.d.). It provides positive returns with low volatility. Here, short selling is an important thing to be considered. It is a widely practiced strategy and can results some considerable results. These are the strategies also claimed to be as an unlawful practice by few researchers but is really a key to success.

Event Driven Strategies

These are basically the strategies which look for the events which are going to effect on the market. These impacts are usually for a short period of time, and it may involve upgrades, buybacks, spin-offs and corporate restructuring (Connor & Lasarte, n.d.).

Large investors usually go for this strategy because tradition equity investors do not have relevant expertise. There is a need of in-depth knowledge and a wider perspective for the implementation of this strategy (www.barclayhedge.com).

This strategy needs sharp eyes and wise speculations. Sometimes assumption is that old fishes of the market, who usually have the experience to, are the individuals who can make good use of this strategy. This proves to be true from the historical values and trends.

Tactical Trading Strategies

These are strategies which make an attempt to forecast the trends in the market. Potential movement and the actual timing of any future movements are what they must forecast (Connor & Lasarte, n.d.). It is basically a counter balance for the market fluctuations. It caters the desire of the investors who are looking for nimbleness and selling discipline (Ross, & Rashopf, 2012).

Relative Value Strategy

These are the strategies which usually take the long-run ability of the market price to relapse the equilibrium relationship. They usually neglect the short-run abilities. They mainly help in taking advantage from the perceived mispricing which is between all the financial assets related (Connor & Lasarte, n.d.).

All the strategies which comes in the context of hedge fund management depend on the economy in which investor and fund manager are dealing. It is not important that each fund manager go for all of ...