An Introduction to Hedge Funds

TL;DR

This paper provides a comprehensive, academically sourced overview of hedge funds, focusing on their characteristics, investment strategies, risk models, and market presence, aimed at professionals and researchers in finance.

Contribution

It offers a detailed, peer-reviewed synthesis of hedge fund characteristics, strategies, and risk management issues, filling a gap in accessible, academically grounded literature.

Findings

Survey of current hedge funds and withdrawn funds

Analysis of risk management approaches used by hedge funds

Discussion of arguments for and against hedge fund usage

Abstract

This report was originally written as an industry white paper on Hedge Funds. This paper gives an overview to Hedge Funds, with a focus on risk management issues. We define and explain the general characteristics of Hedge Funds, their main investment strategies and the risk models employed. We address the problems in Hedge Fund modelling, survey current Hedge Funds available on the market and those that have been withdrawn. Finally, we summarise the supporting and opposing arguments for Hedge Fund usage. A unique value of this paper, compared to other Hedge Fund literature freely available on the internet, is that this review is fully sourced from academic references (such as peer reviewed journals) and is thus a bona fide study. This paper will be of interest to: Hedge Fund and Mutual Fund Managers, Quantitative Analysts, "Front" and "Middle" office banking functions e.g. Treasury Management, Regulators concerned with Hedge Fund Financial Risk Management, Private and Institutional Investors, Academic Researchers in the area of Financial Risk Management and the general Finance community.