Hedge Fund Industry Essay Example | Topics and Well Written Essays - 2000 words

Hedge Fund Industry - Essay Example This can be used for both short and long term investments. Unlike mutual funds, however, hedge funds typically take long and short positions in assets to lower portfolio risk arising from broad market movements. A hedge fund may take long positions in certain stocks, and short positions in other stocks, the portfolio beta of which is close to zero. A beta close to zero implies that the portfolio will remain relatively unchanged due to the broad market movement. Such a portfolio will primarily change if the stocks move more than the broad market. In the U.S., laws require that the majority of investors in the fund beaccredited. That is, theymust earn a minimum amount of moneyannually and have a net worth ofmore than$1 million, along with a significant amountof investment knowledge. (Hedge Fund. 2008). In both rising and falling equity and bond markets hedge fund strategies tend to have the ability to generate positive returns. Since it is a balanced portfolio it helps to reduce overall portfolio risk and volatility and, therefore, has the potential for increased returns. Hedge funds also have an advantage over other options of investment as it offers investors a wide variety of choices in Hedge fund strategies that can be tailor made to suit the investment objective of individual customers. The fact that hedge funds have higher returns and lower overall risk than traditional investment funds has been proved beyond doubt through academic research. Moreover, this platform provides an ideal long-term investment solution, eliminating the concept of correct time entry and exit from markets. Adding hedge funds to an investment portfolio provides diversification which is otherwise not available in traditional modes of investments. The aspiration of the prospective employee Mr.X. Mr.X is undergoing a graduate course in commerce. His father Mr Y had remained employed in the insurance business, and wanted his son to toe in the same line. Mr.X however, had different ambitions. He weighed the pros and cons of joining the hedge fund industry as well as the insurance sector. He sought the advice of different consultants in the field who gave him the necessary information. He found out that the hedge fund industry was more lucrative and he chose this as his career option. Initially he thought that an undergraduate course in commerce would give him the necessary inputs. When he completed more than half the course content, he realised that he will not able to pursue a career in hedge fund with the knowledge gained from this course alone. He came to know about a large variety of job oriented course relating to hedge fund. So, in the final semester, he pursued a part-time certificate course in hedge fund. Again, he realised that there was a gap between theory and practi ce. Thus, in order to receive some practical experience, he underwent an internship with a practitioner in hedge fund consultation. Human Capital Theory: Human capital refers to the stock of productive skills and technical knowledge embodied in the labour free of an organisation. Economists consider human capital as one of the