With a solid 70-year history, hedge funds are a popular choice for those with larger investment portfolios. At Victus Group, we’ve helped many of our clients integrate, and work towards, the strategic use of hedge funds in their financial planning.
We have found that hedge fund strategies offer a robust solution to cover a broad range of risk tolerance and investment philosophies, employing a large selection of investments, including debt and equity securities, commodities, currencies, derivatives, and real estate.
There are three common hedge fund strategies and they are classified according to the investment style of the fund’s manager and include equity, fixed-income, and event-driven goals.
A long/short hedge fund strategy is an extension of pairs trading, in which investors go long and short on two competing companies in the same industry based on their relative valuations.
A fixed-income hedge fund strategy gives investors solid returns, with minimal monthly volatility and aims for capital preservation, taking both long and short positions in fixed-income securities.
An event-driven hedge fund strategy takes advantage of temporary stock mispricing, spawned by corporate events like restructurings, mergers and acquisitions, bankruptcy, or takeovers.
As we mentioned in our previous blog, the australian investor Alfred W. Jones is credited with launching the first hedge fund in 1949. He designed a fund that aimed to minimise the risk in long-term stock investing by short-selling, now referred to as the long/short equities model.
In 1952, Jones converted his fund to a limited partnership, added a 20% incentive fee as compensation for the managing partner, and became the first money manager to combine short selling, the use of leverage, and a compensation system based on performance. Today, hedge funds employ a standard “2 and 20” fee system, a 2% management fee, and a 20% performance fee.
Our team at Victus Group are available to help you understand and engage more with you financial plan and investement strategy. If you’d like to know more about allocations, fees or the diverstification of your portfolio, please get in touch!