Some of the most well-known investors in the world have been
hedge fund managers. The likes of George
Soros and Jim Rogers have seen superb returns from their quantum fund and are
most well known for profiting from shorting sterling crippling the Exchange Rate Mechanism (ERM) in 1992.
A hedge fund has the flexibility to place leveraged trades using a wide range of securities and derivative strategies, as such profits can be generated from the tiniest of movements. With all investments that have the potential for huge returns, these were amongst the most sought after before the credit crisis. But as with leveraged positions, you will always get caught out at some point meaning those gains you made could be wiped out in an instance. This is exactly what happened in 2008, some of the top hedge funds saw heavy losses and sent many investors running to the hills.
Since 2008, the number of hedge funds out there has decreased significantly, and the remaining ones have had a difficult time. Certain funds which rely on trends to generate investment theories have suffered the worse. MAN group is a prime example, using trend trading algorithms to automatically take positions across the market. Prior to 2008, markets trended very well, most notably commodities, however since the credit crisis, economic uncertainty and high volatile periods have meant market direction is very indifferent and it makes it harder to predict.
This is a very basic overview of some of the investment techniques however it highlights the change in appetite for hedge funds and the more aggressive investments. With regulation tightening after the credit crisis, many have investors have moved to regulated investments such as unit trusts and OEICs. Steady consistent gains have become more attractive during this period of anaemic growth and as such some who worked in the hedge fund business have moved to asset managers operating similar strategies within their funds. Rather than trying to obtain large gains, many now aim to produce absolute gains using derivative strategies to produce a low risk fund which hedges risk across a wide range of market areas and asset classes.
Absolute return strategies have been climbing the ranks since 2008, downside risk is fairly limited and for many like Standard Life's Global Absolute Return Strategy fund they aim to produce returns of cash rates plus 6% per annum, a fairly attractive return. This fund has reached a staggering £16bn in size recently and continues to grow as cash investors seek better returns on a fairly low risk basis. This sector has continued to grow and certainly one which is being included in more portfolios as a proxy for cash.
A hedge fund has the flexibility to place leveraged trades using a wide range of securities and derivative strategies, as such profits can be generated from the tiniest of movements. With all investments that have the potential for huge returns, these were amongst the most sought after before the credit crisis. But as with leveraged positions, you will always get caught out at some point meaning those gains you made could be wiped out in an instance. This is exactly what happened in 2008, some of the top hedge funds saw heavy losses and sent many investors running to the hills.
Since 2008, the number of hedge funds out there has decreased significantly, and the remaining ones have had a difficult time. Certain funds which rely on trends to generate investment theories have suffered the worse. MAN group is a prime example, using trend trading algorithms to automatically take positions across the market. Prior to 2008, markets trended very well, most notably commodities, however since the credit crisis, economic uncertainty and high volatile periods have meant market direction is very indifferent and it makes it harder to predict.
This is a very basic overview of some of the investment techniques however it highlights the change in appetite for hedge funds and the more aggressive investments. With regulation tightening after the credit crisis, many have investors have moved to regulated investments such as unit trusts and OEICs. Steady consistent gains have become more attractive during this period of anaemic growth and as such some who worked in the hedge fund business have moved to asset managers operating similar strategies within their funds. Rather than trying to obtain large gains, many now aim to produce absolute gains using derivative strategies to produce a low risk fund which hedges risk across a wide range of market areas and asset classes.
Absolute return strategies have been climbing the ranks since 2008, downside risk is fairly limited and for many like Standard Life's Global Absolute Return Strategy fund they aim to produce returns of cash rates plus 6% per annum, a fairly attractive return. This fund has reached a staggering £16bn in size recently and continues to grow as cash investors seek better returns on a fairly low risk basis. This sector has continued to grow and certainly one which is being included in more portfolios as a proxy for cash.
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