Hedge funds - Statistics & Facts

Hedge funds are a type of alternative investment in which a manager chooses a wide range of investment strategies, typically not available to traditional mutual fund managers. Hedge funds are characterized by active management which attempts to provide higher returns than the market. As such, there are differences in funds management styles, ranging from higher risk strategies for more aggressive investors to safer and more modest strategies for pension funds and other conservative investors.

The worldwide value of assets managed by hedge funds amounted to nearly three trillion U.S. dollars in 2017, with hundreds of new hedge funds launched worldwide each year. The leading hedge funds can generate returns in excess of 30 percent in good year. For more conservative investors, such as insurance companies or pension funds, 5 to 7 percent average return expectations are more realistic.

Hedge funds are not susceptible to tight regulations as in case of mutual funds. They can therefore access markets and instruments not available to traditional investment vehicles. Due to risky nature of hedge funds, fewer financial advisors recommend them with clients in comparison to safer investment products. Investor confidence can also be shaken by the returns of the worst performing hedge funds, which show that the wrong strategy can leave investors very exposed. Even within a certain hedge fund strategy, there can be a high performance spread.

In spite of such hurdles, hedge funds will continue to evolve and develop. The recent hedge fund asset flows show that investors have an appetite for a variety of strategies, and that this appetite is dynamic. The recent rise of cryptocurrency hedge funds speaks to both the flexibility and continued relevance of hedge funds. While they may not remain the vehicle of choice for pensioners, hedge funds will continue to be a part of the investment landscape.

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