The Future of Hedge Fund Investing: A Regulatory and Structural Solution for a Fallen Industry

CHAPTER 4

Hedge Fund Strategies

 

 

 

 

Now that we have examined the world of trading and the evolution of a trader, taking him from a trading desk to a hedge fund, I would like to introduce the reader to some of the more popular hedge fund trading strategies. Along with the description of these strategies, I have also tried to offer some insight into the different skill sets required for executing each strategy. I am sure investors have wondered how a Long-Short equity hedge fund manager like Steve Cohen compares with Warren Buffett, the sage of Omaha and widely regarded as the savviest stock picker of our time. This chapter addresses the difference between a long-term investor like Buffett and a trader like Steve Cohen. I end the chapter with an insight into how these strategies performed in 2008 and the market climate for these strategies going forward.

The hedge funds will operate in any and every asset class imaginable, from the traditional equities and bonds to currencies, commodities, real estate, and even fine art. The geographical focus of these strategies includes the world. While most of the strategies are concentrated in the G10 or the developed countries, there are several funds focused on the emerging markets of Asia, Latin America, and Eastern Europe. We are also seeing hedge funds foray into the so-called frontier markets, or the extremely underdeveloped markets, of Africa and the Middle East. Even the instruments used by the hedge funds are diverse. Besides the traditional ...