Hedge Fund Classification Guide

Gain a deeper understanding of an alternative product’s overall investment approach

Direct Hedge Fund: Direct Hedge Funds are open-ended investment vehicles investing in a wide range of assets using a variety of strategies. These funds are directly invested in assets that fall into the strategy’s theme. Investors are heavily relying on the manager’s expertise in a particular area to provide them with an alternative solution to traditional long-only investments.

Replication Hedge Funds: Replication Hedge Funds aim to replicate hedge fund returns by isolating specific hedge fund strategies and attempting to mimic what the manager is doing. The expectation is to generate similar beta to that of the particular hedge fund.

Hedge Fund-of-Funds: Hedge Fund-of-Funds hold a portfolio of other hedge funds rather than investing directly in shares, bonds or other securities. This type of strategy provides the investor with an opportunity to achieve a broad level of diversification in a variety of fund categories that are wrapped up into one fund. Fund-of-Fund managers will often conduct extensive due diligence on the managers in which they invest. Once invested, the fund manager will actively monitor the firms and funds in the portfolio. These strategies tend to have higher expense ratios as they are often comprised of multiple funds.