"Hedge Fund": how subjects of investment activity can reduce risks

In foreign practice, the term "hedge fund" has been used for more than 50 years, but even now many professionals find it difficult to accurately define this financial institution. The problem is the variety of strategies and tools that different hedge funds use as subjects of investment activity, so it becomes incredibly difficult to fit all their activities into one definition.

The most important difference from traditional investment funds is the opportunity to use alternative strategies, for example, short sales. This means that the profit of a hedge fund has much less correlation with the direction of the market, in contrast to conventional ones. In addition, the hedge fund is able to make profits, including in a falling market, to invest not only in securities, but also in currencies and derivatives, so the hedge fund industry is very heterogeneous in terms of analysis of how other strategies Forms objects and subjects of investment activity.

The responsibility of the subjects of investment activity, and groups of hedge funds, among other things, reflects the extent to which the subjects of investment activity are exposed to certain risks.

Investing in the Russian financial market can be attributed to a group of technologies and strategies for investing in emerging markets. The distribution of the effectiveness of hedge funds using this strategy has not only a high standard deviation, but also a high rate of excess. Traditional subjects of investment activity are subject to this trend in the same way as hedge funds.

Traditionally, hedge funds are considered high-risk financial institutions and were originally intended for wealthy individuals. The main interest of institutional investors to hedge funds arose after three years of the "bear" market in 2000-2002, when stock and bond markets did not bring profit, unlike the hedge fund industry. A similar situation is observed now, when the largest institutional investors are beginning to look for opportunities to invest in hedge funds.

To analyze the possibility of reducing the risk of a portfolio by investing in a hedge fund, it is possible to present a hypothetical fund consisting entirely of the mutual fund "X". This investment fund is supposed to be aimed at extracting profit at the expense of the market value of the exchange rate and is provided by increasing it when investing in various types of debt instruments, primarily bonds of various types and purposes. The choice of specific types of securities for the implementation of such a strategy occurs on the basis of a detailed analysis of the issuer's credit characteristics, taking into account the likelihood of further positive re-assessment of the degree of credit risk, as well as an increase in the market's rating. Thus, since the subject of investment are bonds, the risk indicators of this investment fund are lower than those of the RTS index.

The analysis shows that hedge funds should and can be viewed as an investment tool that investment entities can implement to significantly increase portfolio profitability and reduce risks. There is a huge potential for hedge fund managers to systematically approach the diversification of their portfolio, taking into account the correlation between hedge funds using different strategies and instruments, in order to achieve a significant risk reduction and improve the risk / return ratio.

The use of such technologies and resources greatly extends also the variability of the investment activities for the subjects of this activity.