Investor insights

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Typically managed by institutional investors, hedge funds utilize a wide array of complex and nontraditional investment strategies – such as derivatives and short selling – to generate profits. While their strategies are often diversified to mitigate risk, hedge funds are generally considered a high-risk, high-reward investment with a steep barrier to entry.

 

The concept of hedging in finance is not unlike a garden hedge. While garden hedges are used as an alternative to traditional fences to protect and secure property, financial hedging is a strategy used to limit or reduce a portfolio’s exposure to risk.

When the first hedge fund was created in 1949, its founder, sociologist Alfred Winslow Jones, pioneered the strategy of hedging his stock portfolio with short sells, with the idea that this methodology would protect his investments from potential market downturns. Since then, hedge funds have put a variety of other strategies into practice, but the name has stuck around