In foreign practice, the term “hedge fund” has been used for more than 50 years, but even now many professionals find it difficult to give a precise definition of this financial institution. The problem lies in the variety of strategies and tools that use different hedge funds as subjects of investment activity, so it becomes incredibly difficult to put all their activities in one definition.
The most important difference between them and traditional investment funds is the ability to use alternative strategies, such as short sales. This means that hedge fund profits have much less correlation with market direction, as opposed to regular ones. In addition, a hedge fund is able to make a profit, including in a falling market, to invest not only in securities, but also in currencies and derivatives, therefore, the hedge fund industry is very heterogeneous in terms of analyzing how others pursue their strategies forms of objects and subjects of investment activity.
The responsibility of investment entities, and hedge fund groups, among other things, reflects the extent to which investment entities are exposed to certain risks.
Investing in the Russian financial market can be attributed to a group of technologies and strategies for investing in emerging markets. The distribution of the effectiveness of hedge funds using this strategy has not only a high standard deviation, but also a high excess rate. Traditional investment entities are subject to the same trend as hedge funds.
Traditionally, hedge funds are considered high-risk financial institutions and were originally intended for wealthy individuals. The main interest of institutional investors in hedge funds arose after three years of the “bear” market in 2000-2002, when stock and bond markets were not profitable, unlike the hedge fund industry. A similar situation is observed now, when the largest institutional investors begin to look for opportunities to invest in hedge funds.
To analyze the possibility of reducing portfolio risk by investing in a hedge fund, you can imagine a hypothetical fund consisting entirely of unit investment fund “X”. This investment fund can presumably be aimed at making profit from the market value market situation and provided by increasing it when investing in various kinds of debt instruments, primarily in bonds of various types and purposes. The choice of specific types of securities for the implementation of this strategy is based on a detailed analysis of the issuer's credit characteristics, taking into account how likely the prospects of an additional positive revaluation of the degree of credit risk, as well as an increase in the rating in the market environment. Thus, since bonds are the subject of investment, the risk indicators of this investment fund are lower than those of the RTS index.
Analysis shows that hedge funds should and can be considered as an investment tool that investment entities can implement to significantly increase portfolio returns and reduce risks. There is enormous potential for hedge fund managers in a systematic approach to diversifying their portfolio, given the correlation between hedge funds using various strategies and tools, to achieve significant risk reduction and improve the risk / return ratio.
The use of such technologies and resources to a large extent also extends the variability of actions when investing for the subjects of this activity.