Hedge Fund Strategies
The investment approaches used by hedge funds to generate returns, including long/short equity, macro, event-driven, and arbitrage.
What is Hedge Fund Strategies?
Hedge funds use a wide variety of investment strategies, generally grouped into four broad categories: (1) Equity strategies — long/short equity (buying undervalued stocks, shorting overvalued ones), equity market neutral (minimizing market exposure); (2) Global macro — large-scale bets on currencies, interest rates, and commodity markets based on macroeconomic views; (3) Event-driven — merger arbitrage, distressed debt, and activist investing focused on specific corporate events; (4) Relative value / arbitrage — exploiting pricing inefficiencies between related securities (convertible arbitrage, fixed-income relative value). Most hedge fund strategies target returns uncorrelated with broad markets, allowing portfolio diversification. Performance, fees, and correlation to markets vary significantly across strategies.
Example
Bridgewater Associates, the world's largest hedge fund with ~$90 billion in assets, uses a global macro strategy called 'All Weather' that holds assets to perform across different economic environments — combining equities, long-term bonds, intermediate bonds, commodities, and gold. In 2022, when stocks and bonds both declined sharply, Bridgewater's All Weather strategy gained approximately 5%, validating the diversification value of its strategy.