KUWAIT: Nobel Prize winner Harry Markowitz famously said, “Diversification is the only free lunch in finance.” Diversification is indeed crucial for investors to navigate market volatility and to maximize their risk adjusted returns. Hedge funds can offer valuable diversification opportunities when implemented correctly.
The hedge fund industry has evolved from obscurity to over $4 trillion in Assets Under Management (AUM). Originating in 1949, hedge funds were initially favored by high-net-worth individuals (HNWI). By the 1980s, they attracted a broader investor base, including pension funds and sovereign wealth funds. The 1990s witnessed accelerated growth as hedge funds attracted top talent leading to the emergence and refinement of additional trading strategies to cater to varying risk appetites and market conditions. The 2000s saw advancements in computing power, enabling sophisticated algorithmic trading programs that enhanced performance. The Global Financial Crisis (GFC) of 2008 prompted regulatory reforms and stricter reporting standards to ensure transparency and stability in the industry.
Hedge funds are private, unconstrained investment vehicles that take long and short positions…
