An Introduction to Hedge Funds Version 3.0 Connor and Woo (2003)Page 1
An Introduction to Hedge Funds
By Gregory Connor and Mason Woo
London School of EconomicsSeptember 2003 This article gives a nontechnical overview of hedge funds and is intended for students orpractitioners seeking a general introduction. It is not a survey of the research literature,and citations are kept to a minimum. Section 1 discusses the definition of a hedge fund;section 2 gives a short history of the hedge fund industry; section 3 describes hedge fundfees; section 4 categorises hedge fund investment strategies; section 5 briefly analyseshedge fund risk, and section 6 discusses hedge fund performance measurement. Section7 offers some concluding comments. A bibliography and glossary of terms appear at theend of the article.
1. What is a Hedge Fund?
1.1 Standard definitions of a hedge fund
A hedge fund can be defined as an actively managed, pooled investment vehiclethat is open to only a limited group of investors and whose performance is measured inabsolute return units. However, this simple definition excludes some hedge funds andincludes some funds that are clearly not hedge funds. There is no simple and all-encompassing definition.
Gregory Connor is a professor of finance and director of the IAM/FMG hedge fund researchprogramme, and Mason Woo is a graduate student in the risk and regulation programme at London Schoolof Economics. We would like to thank Morten Spenner of IAM for helpful comments.