These present few problems to the standard mutual funds and unit trusts, but hedge funds are a different breed. Most investors' knowledge of hedge funds is tainted by the collapse of Long Term Capital Management, or the vitriol poured on them by politicians looking for scapegoats for the problems which hit their financial markets. AHL's performance makes the point. From its launch in May 1998 until the end of February this year, it has climbed steadily, but not spectacularly, apart from a recent burst which made it a massive outperformer compared to conventional funds, which were being hammered by the Wall Street and Nasdaq gyrations. But then, spectacular is not what the average investor should be looking for - at least, not anymore.
Brakes are what hedge funds can be all about.
Hedging is a system for limiting falls. By using a variety of devices, including shorting stock and taking punts in futures and options, hedge funds play the markets against themselves. The products they invest in go up when the markets go down. Funds such as AHL, which prefers to call itself an alternative investment vehicle, also offer diversification. The fund's record shows consistent returns and volatility.