| While performing due diligence on a potential | | | | financial futures markets, as well as currency |
| hedge fund, you should take the time to get to | | | | markets globally. This style of management relies |
| know the management style favored by those | | | | on accurate and timely information regarding |
| who will be managing your investment. Most | | | | pricing and other technical knowledge to maximize |
| hedge fund managers have a specialty, and this | | | | returns. |
| expertise is often directly related to the types of | | | | - Global Macro - this type of style focuses on long |
| decisions that will be made and which markets will | | | | and short positions in both capital and derivative |
| be explored for profit potential. Because these | | | | markets throughout the world. Tied closely to |
| types of investments need active and insightful | | | | global economic events, they can be invested in |
| decision-making in order to obtain the best result, | | | | emerging markets and economies as well as |
| the style of management will have a substantial | | | | developed countries. |
| impact on the level of returns you can expect | | | | - Event-Driven - just as the name suggests, this |
| from two similar hedge funds. Understanding the | | | | style focuses on pricing movements that are |
| performance style will also allow you to track the | | | | linked to events that happen in businesses, either |
| general returns for similar styles in the past, | | | | locally or globally. Mergers and acquisitions are two |
| providing a more thorough evaluation of the | | | | of the most prevalent events that this type of |
| hedge fund overall. | | | | style may follow. |
| Common Styles for Hedge Fund Management | | | | There are other hedge fund management styles |
| No one investment discipline is superior to the | | | | as well, each with its own advantages and |
| others, and most are tailored to maximize returns | | | | drawbacks. How these styles are implemented by |
| on a specific type of investment. A successful | | | | the fund manager will vary based upon the unique |
| hedge fund may employ any or all of these styles | | | | circumstances and investments surrounding each |
| to some extent, depending upon the types of | | | | individual hedge fund. By fine-tuning these styles |
| opportunities that comprise the fund. Keep in mind | | | | to closely follow the data and expected trends, |
| that when performing due diligence on the fund, | | | | exceptional returns may be possible. |
| you will need to keep in mind not on the style, | | | | Evaluating the type of hedge fund management |
| but the intended market when making your | | | | style that your hedge fund manager prefers |
| evaluations. | | | | cannot be done in isolation. You must consider not |
| - Fixed-Income Arbitrage - uses the price | | | | only the style, but the current market conditions, |
| anomalies between related securities to obtain | | | | the companies and other institutions that may be |
| profit. This style can be used domestically or | | | | part of the investment, and the potential of those |
| abroad to generate positive returns. These | | | | companies, stocks, or other ventures. It is only |
| returns tend to be steady, and fixed-income | | | | after gaining an educated overview of the entire |
| arbitrage is generally focused on minimizing | | | | situation that a management style can be |
| volatility. | | | | properly evaluated for potential effectiveness. |
| - Managed Futures - utilizes commodity and | | | | |