What are Hedge Funds?

In today's global capital markets, hedge funds are perhaps the most misunderstood area. Media attention has focused on fraudulent managers, creating the misconception that hedge funds are inherently flawed and inordinately risky. Such cases are the exception, not the rule.

Mutual funds are a particular type of investment vehicle, a wrapper or package whose underlying contents vary by asset class or investment style. Similarly, hedge funds are a broad collection of investment strategies that span the entire risk/return spectrum. Many hedge fund strategies are designed as low-risk diversification tools whose main objective is preservation of capital. Indeed, managers literally hedge certain exposures to reduce risk. Meanwhile, other strategies have a greater risk/return profile and are more performance-oriented. The most common characteristics of hedge funds are (1) the ability to invest both long and short using a variety of instruments, including equity and debt securities, futures, options and other derivatives and (2) a performance fee, whereby managers earn a portion of the profits they generate (typically 20%). Moreover, hedge fund managers are generally expected to produce positive absolute returns in virtually all types of environments.

In the past, hedge funds were usually structured as private limited partnerships and were only available to investors meeting certain qualification standards. Now, the underlying strategies are available through a more diverse set of structures. These include separately-managed custodial accounts and even mutual funds.

Since 2001, 361 Capital has been managing portfolios of hedge funds to meet the unique needs and objectives of wealthy families and institutions. Our experience includes allocations to global long/short equity, distressed securities and credit-oriented managers, convertible securities, arbitrage strategies and commodity trading advisors (CTAs).

Learn more about how we create portfolio solutions using hedge funds and other alternatives investments: