I feel that the term hedge fund is an misnomer. Why?
Whenever we use the word hedging in investments, it usually means the taking up of new positions to reduce or eliminate the risks (or volatility) in the positions we were already holding.
While hedge funds might take up positions for hedging at certain times, most hedge funds are also highly leveraged funds.
Using leverage multiples both profit and losses. This increase of beta is the exact opposite of what we would expect when we hear the word hedging.
Here are some interesting numbers showing the 6-month returns of both locally registered and international hedge funds.
Singapore Registered Hedge Funds
International Hedge Funds
Just look at the top result for the international funds.
Over leveraging is like playing showhand in poker. Double your money, or lose everything you have.
If you play showhand long enough, it is almost certain that you will end up broke.