What strategies do quantitative hedge funds use?

Most Quantitative Hedge Fund trading/investment approaches fall into one of two categories: those that use Relative Value strategies, and those whose strategies would be characterized as Directional. Both strategies heavily utilize computer models and statistical software.

Can you start a hedge fund by yourself?

Yes, you could start with much less capital, or go through a hedge fund incubator, or use a “friends and family” approach, or target only high-net-worth individuals. But if you start with, say, $5 million, you will not have enough to pay yourself anything, hire others, or even cover administrative costs.

Can you start a hedge fund with 1million?

There’s no real prescribed target, but you should aim to have at least $5 million in AUM to be successful, while $20 million will make you noticeable to investors. Having $100 million will get you noticed by institutional investors.

Can individuals invest in hedge funds?

To invest in hedge funds as an individual, you must be an institutional investor, like a pension fund, or an accredited investor. Accredited investors have a net worth of at least $1 million, not including the value of their primary residence, or annual individual incomes over $200,000 ($300,000 if you’re married).

What are the strategies used by hedge funds?

The strategies employed by hedge funds are extremely diverse. For systematic funds, they will often fall into the groups of trend-following, mean-reversion, statistical arbitrage or high frequency/market making. All funds keep their cards extremely close to their chest so good strategies are rarely revealed.

Do hedge funds need more depth of analysis?

Although mutual funds and hedge funds can be analyzed using very similar metrics and processes, hedge funds do require an additional level of depth to address their level of complexity and their asymmetric expected returns.

Are hedge funds with low or high returns better investments?

For example, a hedge fund with low and stable returns is probably a better substitute for fixed income investments than it would be for emerging market equities, which might be replaced by a high-return global macro fund. Relative returns, on the other hand, allow an investor to determine a fund’s attractiveness compared to other investments.

Is standard deviation a good measure of risk in hedge funds?

Unfortunately, that is also the reason for its weakness in describing the inherent risks in hedge funds. Most hedge funds do not have symmetrical returns, and the standard deviation metric can also mask the higher-than-expected probability of large losses.