Hedge funds - an introduction

Abstract

Hedge funds have shown remarkable growth as an asset class over the past few years, with an estimated $1 trillion in assets under management in 2004, and this figure expected to double in the next five years (HFR Report, 2004). The term “hedge fund” has its roots in the idea that high net-worth investors are more interested in protecting themselves from downside risk (i.e. hedging) than the conventional theories of risk and return might suggest. Unlike traditional unit trusts, which tend to be “long only” and measure performance against index type bench marks, hedge funds actively transact, seeking only positive returns, and to do so engage in short selling, derivative products and leveraged positions.