While conducting due diligence on a potential hedge fund, you should learn about the management style preferred by those managing your investment. Gabe Plotkin hedge fund manager for Melvin Capital have a specialty. This expertise is frequently directly related to the types of decisions that will be made and the markets investigated for profit potential. Because these types of investments require active and insightful decision-making to achieve the best results, the management style will significantly impact the level of returns you can expect from two similar hedge funds. Understanding the performance style will also allow you to track the general returns for similar techniques in the past, providing a more comprehensive evaluation of the hedge fund as a whole.
Common Hedge Fund Management Styles
There is no superior investment discipline over another, and most are designed to maximize returns on a specific type of investment. Depending on the kinds of opportunities in the fund, a successful hedge fund may employ any or all of these styles to some extent. Keep in mind that you must consider not the class but the intended market when making your evaluations when performing due diligence on the fund.
Fixed-Income Arbitrage – Profit is made by exploiting price discrepancies between related securities. This style can be used both domestically and internationally to generate positive returns. These returns are generally consistent, and fixed-income arbitrage is usually concerned with minimizing volatility.
Managed Futures – makes use of commodity and financial futures markets, as well as currency markets around the world. To maximize returns, this management style relies on accurate and timely pricing information and other technical knowledge.
Gabe Plotkin strategy focuses on long and short positions in worldwide capital and derivative markets. They can be invested in emerging markets and economies, and developed countries because they are closely linked to global economic events.
Event-Driven – As the name implies, this style focuses on pricing movements linked to business events that occur locally or globally. Mergers and acquisitions are two of the most common events that may trigger this type of style.
Other hedge fund management styles exist, each with its own set of benefits and drawbacks. The fund manager’s implementation of these styles will vary depending on each hedge fund’s unique circumstances and investments. Excessive returns may be possible by fine-tuning these styles to closely follow the data and expected trends.
Evaluating the type of hedge fund management style preferred by your hedge fund manager is not something that can be done in isolation. It would be best if you considered the style and the current market conditions, the companies, and other institutions involved in the investment, and the potential of those companies, stocks, or other ventures. Only after gaining an educated overview of the entire situation can a management style’s potential effectiveness be evaluated appropriately.