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Hedge funds can provide diversification to an institution or family office portfolio of long stocks and bonds. Mixing an uncorrelated asset stream into a portfolio can help "straigthen out the line."
Some in the public have a misconception about hedge funds. Most hedge funds are not swinging for the fences. They seek to provide better risk-adjusted returns than the underlying market they trade.
I can tell you that getting the short side right (with its borrowing costs and spikey moves) is a quantum leap more difficult than beating the index on the long side. And beating on the long side is one of the hardest things to do in investing. This is why most potential investors ask first about the shorting philosophy/methodology.
The best hedge funds generate alpha on the long and short side over time and use leverage properly. It's generally easier for smaller funds to accomplish this feat, as they are more nimble. Paradoxically, many allocators who have to justify their jobs feel safer recommending "name brand" hedge funds which are typically quite large.
Comments
Hedge funds can provide diversification to an institution or family office portfolio of long stocks and bonds. Mixing an uncorrelated asset stream into a portfolio can help "straigthen out the line."
Some in the public have a misconception about hedge funds. Most hedge funds are not swinging for the fences. They seek to provide better risk-adjusted returns than the underlying market they trade.
I can tell you that getting the short side right (with its borrowing costs and spikey moves) is a quantum leap more difficult than beating the index on the long side. And beating on the long side is one of the hardest things to do in investing. This is why most potential investors ask first about the shorting philosophy/methodology.
The best hedge funds generate alpha on the long and short side over time and use leverage properly. It's generally easier for smaller funds to accomplish this feat, as they are more nimble. Paradoxically, many allocators who have to justify their jobs feel safer recommending "name brand" hedge funds which are typically quite large.