I recently attended a Hedge Fund conference where this question was asked to a panel of five Senior Institutional Investors by the panel’s moderator also a senior Institutional Investor. After a moment of silence numerous points were made but no single clarified definition was formulated. The moderator of the group who had asked the question made this comment:  A hedge fund is technically any investment strategy that is not long only.

The panel proceeded to add a few of their own thoughts:

• Any investment strategy where investors pay a performance fee

• Any investment strategy where the investor’s investment is locked into the fund for at least 6 months

• Any investment strategy excluding real estate and private equity

• Any investment strategy uncorrelated to the markets - equity or fixed income

• Any investment strategy which can only be invested in by accredited investors

After awhile this question was left open and the panel proceeded to discuss many other interesting perspectives regarding Hedge Funds in the institutional investor space.  The one perspective that really caught my attention was the fact that these large institutional investors viewed what hedge funds do for their portfolio in many different ways. 

The majority of the panel viewed Hedge Funds as a way to generate additional alpha which may or may not be correlated to the markets.  Another group viewed Hedge Funds purely as products which should be benchmarked against fixed income returns and the funds should provide low volatility and absolute returns.

Obviously what a Hedge Fund is and what a Hedge Fund is supposed to accomplish is a question with no one correct answer, but then how are we suppose to identify a Hedge Fund in the marketplace?

So now I ask the question to you; what is a Hedge Fund? I look forward to reading your responses