Investing in hedge funds can increase the diversity of the portfolio, and investors can reduce the overall risk exposure of the portfolio. Hedge fund managers use specific trading strategies and tools to reduce market risk and obtain risk-adjusted returns, which is consistent with investors' expected risk level.
The return of an ideal hedge fund has nothing to do with the market index. Although "hedging" is a means to reduce investment risks, hedge funds, like all other investments, cannot completely avoid risks.
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Investors in hedge funds must be experienced and qualified investors. They should know the risks of investment and be willing to bear these risks, because the possible returns are related to risks. In order to protect funds and investors, fund managers can adopt various risk management strategies.
Hedge fund management companies may hold a large number of short-term positions or have a particularly comprehensive risk management system. The fund can set up a "risk officer" to be responsible for risk assessment and management, but it can not interfere with the transaction, or it can adopt a formal portfolio risk model and other strategies.
Various measurement techniques and models can be used to calculate the risk of hedge fund activities; According to the different fund size and investment strategy, fund managers will adopt different models. Traditional risk measurement methods do not necessarily consider the normality of returns and other factors.