Hedge funds are private investment vehicles for accredited investors — fewer regulatory constraints, flexible strategies, with the ability to use use and short-selling. “Hedge” originally meant reducing market risk through opposite-direction long/short positions, but modern hedge fund strategies extend far beyond this original meaning to encompass virtually all active management approaches targeting absolute returns.
## Seven Major Strategies
**Global Macro**: large directional trades in currencies, interest rates, equity indices, and commodities based on macroeconomic and political judgments. Representatives: Bridgewater Pure Alpha (primarily asset allocation), Soros’s Quantum Fund (historically notable for currency speculation). Strength: can theoretically profit in any market environment. Weakness: forecasting macro direction is extremely difficult; timing errors are costly.
**Long/Short Equity**: go long undervalued stocks, short overvalued stocks; profit through stock selection rather than market direction. Net exposure is controlled within a range to reduce overall market risk. This is the largest asset management category among global hedge fund strategies.
**Statistical Arbitrage**: discussed above — quantitatively driven, using statistical pricing models to identify and trade short-term deviations between assets.
**Event-Driven**: trading around corporate events (M&A, bankruptcy restructuring, spinoffs, earnings surprises), including Merger Arbitrage and Distressed Securities.
**CTA/Trend Following (Managed Futures)**: systematically following price trends across multiple asset classes (equity futures, commodities, FX, rates); low correlation with traditional assets; typically performs well in equity bear markets.
**Fixed Income Arbitrage**: exploiting bond market mispricings including yield curve arbitrage, credit spread arbitrage, and mortgage securities arbitrage. LTCM used this strategy and collapsed due to Russian sovereign default and liquidity crisis.
See [Quantitative Investing Intro](https://sunqi.org/quantitative-investing-intro-en/) and [Preqin hedge fund database](https://www.preqin.com/).
