Five myths of hedge fund investing

Much needed diversification

Investors new to hedge funds are often wary of managers who specialise in these strategies. We observe that when navigated with expertise, liquid diversifying strategies deserve a place in the long-term investment portfolio.

But are investors right to be cautious of hedge funds? Which common generalisations deserve a different perspective? Claim 1: "Hedge funds are very risky" Myth As their name suggests, hedge funds more typically employ hedged, so-called ‘relative value', positions which exploit market price inconsistencies rather than taking outright bets on the direction of market prices. History shows that hedge fund returns are less volatile than traditional assets classes. For the three years to January 2023, hedge fund performance volatility was 5.5%, versus 20-25% across global equity indices, a...