Introduction

Unlike mutual funds, hedge funds include a wide variety of non-traditional, private investment funds, which are actively managed by fund managers. The fund basically results in higher than average returns to the investors of the fund via optimizing diverse range of markets, investment vehicles and portfolio strategies. The main feature of hedge fund is that, it allows only institutions and high-net-worth individuals to invest in the fund.

With open-ended feature, the value of an investment in a hedge fund is calculated as a share of the fund’s net asset value. No matter whatever the nature of market be, i.e., bullish or bearish, hedge fund investment strategies aim to achieve a positive return on investment.

One important feature of hedge fund is investment room for hedge fund managers in the fund, serving to align the interests of fund managers with that of investors of the fund. Basically, investment managers in hedge funds receive management fee as a percentage of assets of the fund, combined with a performance fee amidst increased net asset value of the fund during a particular year.

Investment Strategies

Directional Strategy: Basically, directional investment strategies are focused on market movements or trends in the markets. This strategy focuses on market inconsistencies while picking stocks across mixed markets. In common, this type of strategies include international long/short equity funds, where long equity positions are hedged with short sales of equities or equity index options.

Event Driven Strategy: These strategies are concerned with situations in which the underlying investment opportunities and risks are directly correlated with a particular event. The events considered while exercising this form of investment strategies could be consolidations of companies, acquisitions, bankruptcies and liquidations of entities.

Relative Value Strategy: Basically, these strategies are exercised while there is availability of relative discrepancies in prices of securities. The strategy could be exercised to take advantage of relative discrepancies in securities prices.

Beyond these investment strategies, other investment strategies like, fund of hedge funds, multi-strategy, multi-manager strategy, 130-30 funds, risk parity strategy etc. are other popular hedge fund strategies being actively exercises at international markets.

Best Performing Fund in 2012

As of 2012 end, the best performing hedge funds company is U.S. based Metacapital Mortgage Opportunities with $1.5 billion of assets. The investment strategy adopted by the firm is ‘Mortgage-backed Arbitrage Strategy.’ Further, YTD and 2011 returns of the firm are 37.8 percent and 23.6 percent respectively.