11/6/2023 0 Comments Global macro trading audiobookOn the more extreme ends, there are also long-only and short-only funds in this category. Many funds have a long bias, as in this example, while others are market-neutral (net exposure close to 0), and still others have a short bias. Sub-Categories: The most well-known strategy here is long/short equity, which attempts to long and short a variety of stocks, usually targeting a certain net exposure for the portfolio.įor example, a fund with 70% long positions and 30% short positions has a 40% net exposure, assuming that it does not use leverage. Options-based strategies sometimes fall into this category, but funds using equity strategies tend to use options as components of their strategies, such as to reduce risk and limit losses. The most basic strategy is to take long positions in stocks that appear to be undervalued and take short positions in stocks that appear to be overvalued.Ī “long” position means that the fund buys shares with the expectation that the price will rise.Ī “short” position means that the fund borrows shares, sells the shares at a higher price, and then attempts to buy them back at a lower price. “Equity strategies” usually comprise the biggest percentage, so let’s start there: Hedge Fund Strategy #1: Equityĭescription: Equity strategies are based on stocks and their derivatives, such as call options and put options. Here’s how Preqin divides up the hedge fund universe: On the other hand, you’re not in a good position to work at a long/short equity fund because you do not analyze and value individual companies. In other words, if you’re on the rates trading desk, you’re in a good position to trade sovereign bonds or interest rate derivatives at hedge funds that use those products in their strategies. In most cases, you should start by thinking about the asset class because that correlates most closely with your ability to work at a fund. Size of Fund: Under $1 billion AUM? $1 – 5 billion? Over $10 billion?.Fund Model: Single-manager or multi-manager?.Automation Level: Discretionary? Systematic (“ quant”)? Something in between?.Investment Style: Directional? Event-driven? Relative value (arbitrage)? Global macro?.Industry Focus: Technology? Healthcare? Energy? Generalist?.Asset Class: Equities? Fixed Income? Options? Commodities? Currencies? Convertibles? Private assets? Crypto? NFTs? Elon Musk’s Tweets? A mix of all of these?.More realistic, searchable criteria include: That’s great, but good luck searching for funds that match that one on LinkedIn, Capital IQ, and other online databases. You could classify hedge funds according to dozens of criteria, but many of these criteria are not useful when searching for funds.įor example, maybe you want a fund with a specific “culture,” such as a laid-back environment with quirky, artistic people. How Do You Categorize Hedge Fund Strategies? For more, see our coverage of hedge funds vs. Hedge funds and private equity are similar in some ways, but PE firms focus on buying and selling entire companies, not individual securities, and they recruit slightly different types of candidates. In exchange for that, they also charge higher fees than mutual funds, including management fees on assets under management and a percentage of the investment profits, called “carry.” They seek out investments that will beat the overall market or reduce risk while earning market returns, and they use a wider array of strategies than those available to traditional mutual funds and asset management firms. In short, hedge funds are investment funds that raise capital from institutional and accredited investors and then invest it in financial assets – usually liquid, publicly-traded assets. We’ll delve into these points here, but let’s start with the basics: What is a Hedge Fund?
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