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Hedge Fund Investing :: The Market Oracle :: Financial Markets ...

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Mon, 26 Oct 2009 07:03:29 GM

Hedge Fund. Investing :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website.

What's the difference between private equity funds and hedge fund?
Q. I read in Business Weekly that pension funds, university endowments, and other big investors invest in hedge funds and private equity funds. An accompanying graph shows that private equity funds had much higher returns than hedge funds in 2006 and 2007, but also greater losses in 2008. What is the difference between the two? Do they invest in different products? If not, on what base would a pension fund choose whether to invest in one or the other? Thank you!
Asked by ontheroadto1m - Wed Jun 3 20:32:20 2009 - - 2 Answers - 0 Comments

A. Interesting question. The two represent different asset classes, with their own returns cycles. The pension funds and other endowments seek exposure to different asset classes to diversify away their risks. Hedge Funds typically invest in publicly traded securities, currencies, derivatives, etc. and present some interesting strategies. There is a long list of these strategies, with names like portable-alpha, absolute-return, 130-30, long-short, stat-arb, and so on. But these are lightly supervised investment vehicles. Managers are incentivized by participation in profits beyond some hurdle. Their expertise is in markets, modeling, trading. Private Equity funds otoh are more corporate finance/executives kind. They typically try to spot… [cont.]
Answered by Dinesh - Wed Jun 3 23:16:59 2009