Hedge Funds - A Misnomer?

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The word “hedge” in hedge fund is pretty much a misnomer. A hedge fund can invest in almost any opportunity in any market and does not necessarily “hedge”. The aim of most hedge funds is to reduce volatility and risk whilst attempting to preserve capital and deliver positive returns under all market conditions – i.e. they are suppose to take less risk and make money in both bull and bear markets.

The original hedge funds are legendary - global macroeconomic funds managed by titans like Julian Robertson or George Soros. Nowadays, every Tom, richard can get into the business and set up a hedge fund. These people are no longer hedging and managing risk, many of them simply place large directional bets on stocks, currencies, bonds, commodities, and gold, using lots of leverage. Instead of making money with the ups and downs of the market, many of them get wiped out by large and unexpected market fluctuations.

Find out more about hedge funds on Master of the Universe