Hedge funds are private pools of capital that invest in a diverse array of financial instruments—stocks, bonds, futures, options, swaps and other complex derivatives—with the intent of minimizing losses during turbulent markets, while also seeking capital appreciation.  This absolute return focus attempts to mitigate the effect of a significant loss, which could require several years of positive returns to recover from.

The Case for Hedge Funds

• Attractive diversifiers—hedge funds often have low correlation with traditional assets
• Broad flexibility—hedge fund managers usually have a broad mandate to invest in a wide range of securities and strategies
• Alignment of interest—hedge fund managers typically earn a percentage of fund profits and have a significant portion of their personal assets invested in their strategies.  As a result, their financial involvement helps ensure the alignment of manager and investor interests

Note: There are risks specifically associated with investing in hedge funds. There can be no assurances that a hedge fund's investment objective will be achieved or that its investment program will be successful. The risks typically include those associated with investing in short sales, options, small-cap stocks, "junk bonds," derivative instruments, distressed securities, non-U.S. securities and illiquid investments.