Hedge Fund Investment

Types of Hedge Funds

Hedge funds can be classified by and types of funds and styles of funds.

Types of Fund

Convertible arbitrage

Funds that attempt to exploit anomalies between the price of a stock and the prices of instruments convertible into the stock.

Distressed securities

Funds that exploit the fact that many investors lack the desire to participate in the bankruptcy process or the ability to identify their value.

Emerging markets

Funds that focus on less mature investment markets.

Equity market neutral funds

Funds that offset long positions in stocks with equal short positions in order to eliminate systematic market exposure (beta).

Fixed income arbitrage

Funds that try to predict changes in credit ratings or the term structure of interest rates. Typically these funds strive for market-neutral positions by offsetting long and short positions.

Funds of funds

Funds that invest in a number of other hedge funds, offering diversification at the cost of double fees.

Global macro

Funds that exploit systematic market moves in currencies, futures and option contracts.

Hedged equity

Funds that hold both long and short positions but typically remain net long.

Market neutral (or relative value) funds

Funds that attempt to produce return series that have no or low correlation with traditional markets such as the US equity or fixed income markets.

Merger arbitrage

Funds that capture any spread between the price of a company and the price that a planned acquirer has offered.

Offshore hedge funds

These funds utilise modern financial instruments and investment techniques to either control the investment risk or gear exposure for maximum growth.

Hedge Fund Styles

Equity hedge

Funds that focus on investing long and short for varying degrees of market exposure and leverage.

Global asset allocation

Funds that opportunistically go long or short a variety of assets.

Short selling

Funds that focus on shorts equities in anticipation of a market decline.

Event driven

Funds that seek to make profitable investments by investing in a timely manner in securities that are presently affected by particular events. Such events include distressed debt investing, merger arbitrage (sometimes called risk arbitrage) and corporate spin-offs and restructuring.


Funds that employ long/short strategies generally invest in equity and fixed income securities, taking directional bets on either an individual security, sector or country level.

Tactical trading

Tactical trading refers to strategies that speculate on the direction of market prices of currencies, commodities, equities and/or bonds.

For advice on Hedge Funds, please talk to a qualified Holborn Assets adviser.