Why Invest in Hedge Funds?

There are several possible reasons to invest in hedge funds. First, I would say that not all hedge funds are created equal. I would roughly divide them into low volatility (arbitrage type) and higher volatility.

For low volatility, I think they currently offer a great alternative to bonds, as yields are so low; you're better of buying a low-vol hedge fund. I've seen great funds of funds that will return 10% annually (in USD) with volatility of 3-4%. For higher volatility, I guess it all depends on your risk profile.

This is the original global-macro space with returns of 20%+ per year. Unfortunately, the global-macro funds have been steadily declining with so many new hedge funds coming into existence, thereby reducing any market inefficiencies quickly. I can still find some funds in this space, but most are closed to new investors.

The strategy is to use hedge funds to reduce the volatility of the overall portfolio by investing in an asset class much less correlated to stocks and ... more.

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