Benefits of Managed Futures | Hedge Funds | Faq's | Investors | A Case for Managed Futures

In 1949, Alfred Winslow Jones established the first hedge fund. Remarkably, he was able to tightly guard his investment strategies for nearly two decades. Since those early days, the hedge fund industry has remained one of the most misrepresented and misunderstood areas of finance.

Hedge funds refer to funds that can use one or more alternative investment strategies, including hedging against market downturns, investing in asset classes such as currencies or distressed securities, and utilizing return-enhancing tools such as leverage, derivatives, and arbitrage.

Hedge Fund managers have a high degree of flexibility in the investment strategies they employ.

Managers can be active on the long and short side of the market. Many but not all hedge funds invest in derivatives instruments that derive from an underlying security. Some of these instruments include options, futures, convertibles and warrants. These diverse strategies and instruments utilized by hedge funds usually result in low correlation to typical equity market benchmarks.

The hedge fund industry has experienced unprecedented growth in the last decade, growing by some estimates from as few as 300 funds in 1990 to more than 6000 today and are thought to command over $600 billion in capital before leverage.* According to HedgeWorld, researchers have predicted that the hedge fund industry will be handling US$1.5 trillion by 2010.

Much of the responsibility for the hedge fund boom falls on increased demand for asset diversification driven by the poor stock market performance in recent years. The vast majority of hedge funds make consistency of return, rather than magnitude, their primary goal.

	Hedge Funds		Mutual Funds
Private investment vehicles May use leverage extensively May engage in short selling May use derivatives Larger minimum investments Restricted from advertising Offered by private placement memo Liquidity varies from monthly to annually Manager compensated on performance Manager invests own capital Flexibility in investment strategies Usually aims for absolute return		SEC Registered investment vehicles Limited use of leverage Maximum 30% of profits from short-sales May not use derivatives Small minimum investments May freely advertise and promote Offered by prospectus Daily liquidity and redemption Manager paid a salary and bonus Manager typically does not invest own capital Relatively inflexible Aim to outperform known market

• Convertible Arbitrage - Hedge investing in the convertible securities of a company
  
• Dedicated Short Bias - Take short position in mostly equities and derivatives
  
• Emerging Markets - Involves equity or fixed income investing in emerging markets around the world
  
• Equity Market Neutral - Designed to be beta/currency neutral and capitalize on market inefficiencies
  
• Event Driven - Designed to capture price movement generated by an anticipated corporate events
  
• Fixed Income Arbitrage - Aims to profit from price anomalies between related interest rate securities
  
• Global Macro - Carry positions in any of the world's major capital or derivative markets
  
• Long/short Equity - Equity investing on both sides of the market
  
• Managed Futures - Invests in listed financial and commodity futures markets and currency markets around the world. The managers are usually referred to as Commodity Trading Advisors ("CTA")

 * Numbers are estimated because exact figures are hard to come by since reporting is voluntary, and most hedge funds do not have to register with the SEC

Risks: When considering alternative investments, including hedge funds, you should consider various risks including the fact that some products: often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be lliquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees, and in many cases the underlying investments are not transparent and are known only to the investment manager.

Benefits of Managed Futures | Hedge Funds | Faq's | Investors | A Case for Managed Futures