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The role of hedge funds has become increasingly important in the financial environment over the past twenty years, and their use within financial portfolios has grown accordingly. But what is a hedge fund?

In simple terms, it is a private speculative investment fund administered by professional management companies which use a variety of techniques (Long/Short Equity, Global Macro, …) to generate higher returns with less risk. Its name recalls hedging (protection strategies aimed at limiting the risk and volatility of the portfolio). Unlike mutual funds, hedge funds undertake more aggressive, risky, and exclusive strategies; furthermore, not every person is eligible to invest in these alternative funds, in fact only an accredited investor, who has some specific characteristic (both at the asset and knowledge level), is qualified to take part in a hedge fund.

As for the earning method, besides the management fee, the managers receive a performance fee based on annual performance.

For what concerns the future, it is expected that the main trends observed during the previous year will also continue in 2022. More precisely, higher volatility levels in both the equity and fixed income markets leading to wider dispersion in performance of stocks, bonds and off-the-run investment opportunities for hedge fund. In general, a greater level of volatility and dispersion brings with it various implications which include the use of hedge funds as a means of protection and diversification to be included within a financial portfolio or the preference of certain strategies over others, which in a similar context are able to bring advantages; moreover, an increase in investments in alternative sectors, such as corporate sustainability and cybersecurity, is expected.

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