Hedge funds use the combined financial assets of all of their investors to make investments on the market, paying out the profits to everyone involved in the fund at specified points in time. Notably, hedge funds are very open regarding what assets they can invest in, as they are exempt from many of the regulations imposed on other funds and investors by the United States Securities and Exchange Commission (SEC).
This is also why it's difficult to classify hedge funds according to "type". Since they have the freedom and flexibility to invest in various asset classes, following whatever investment strategy they choose, no two hedge funds are exactly the same. In today's market, you can find a single-manager investment strategy focusing on convertible arbitrage just as easily as a multi-manager global macro fund or a quantitative hedge fund strategy using algorithms instead of portfolio managers specializing in commodities trading, for example.
Hedge funds aren't subject to many of the SEC's regulations, but Regulation D of the Securities Act of 1933 limits their availability to investors. In short: You have to qualify as an accredited investor in order to be able to invest in them, which is in stark contrast to mutual funds or ETFs, which are open to everybody (but are restricted in terms of which assets they can invest in). Additionally, many hedge funds require large minimum investment sums of $100,000 or more. While CARL does require you to qualify as an accredited investor, our minimum investment is only $20,000, ensuring that all eligible investors can finally benefit from the power of quants!
There can never be an exhaustive list of all hedge fund types, as there are countless combinations of investment strategies and universes, combined with different approaches such as active management or the quantitative approach, which is CARL's forte. That being said, here are some of the more notable fund "types" according to the strategies they employ:
Perhaps the most traditional hedge fund strategy of all, long/short means the firm invests in long positions and short positions at the same time, usually for competing companies. You're effectively betting on one company outperforming the other, regardless of overall market development.
The main goal of market-neutral strategies is zero net-market exposure – or "zero risk". This means the fund's manager will take long and short positions of equal value to create a portfolio that will generate absolute return no matter how the market behaves. You're effectively betting on both horses in a race, guaranteeing you a win. However, the potential returns of these strategies are typically lower compared with strategies that don't hedge all of their positions.
Event-driven or global macro
These two distinct hedge fund strategies are connected because they make investment decisions based on current or predicted events. While event-driven funds invest to take advantage of small-scale events (buying company debt, betting on a merger, etc.), global macro strategies are focused on large-scale market trends, which may be affected by large-scale events such as a war or a financial crisis.
Arbitrage funds typically derive profits from buying and selling assets in different markets. This means they rely on pricing differences in different markets to generate gains. Some sub-types of this system include convertible arbitrage, merger arbitrage, and fixed-income arbitrage.
While most hedge funds only differ in terms of which strategies they employ, one much more fundamental distinction has become evident over the past few decades – the difference between quants and the more old-school hedge fund model.
Traditional hedge fund firms are staffed by managers and traders whose job is to evaluate assets and choose which fit into their fund's strategy. On the other hand, quants use an advanced computer algorithm, machine learning, and sophisticated large-scale market modeling to automatically evaluate and choose assets based on available data.
Take advantage of the power of quants – using 21st-century technology to beat 21st-century markets!
In short, quants- such as the ones which CARL can give you access to technological solutions to deal with the complexities of modern markets instead of relying on a manager's knack for picking the right assets. Quants have shown that they can outperform traditional hedge fund strategies, especially in high-volatility market environments, which is why CARL's quants, for example, can offer 15%+ targeted returns.
The main advantage of the quantitative approach is its ability to manage the risk of a hedge fund manager making a bad call, overvaluing or undervaluing stock, or making questionable investment decisions based on intuition. Though with CARL's quants, you stand to gain even more advantages: as our quants have no lock-up periods, your investments are exceptionally liquid compared to traditional hedge funds. If you find yourself in need of cash quickly, you can withdraw your investment on a monthly basis with the CARL app.
CARL gives you unprecedented access to quants of various types and with various investment focuses, from long/short equity to managed futures. With a minimum investment as low as $20,000, this gives you the chance to benefit from sophisticated quantitative investment strategies otherwise only available to a rich elite. CARL breaks down the hurdles that have previously prevented accredited investors from getting into quants, so that you can benefit from highly liquid investment opportunities with 15%+ targeted returns. Set up your CARL account to get access to some of the most promising quants available today.