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If you are an individual who is interested in investing with hedge funds, then you are no doubt aware of the wide variety of hedge funds available to you. It’s difficult to narrow down your selection to funds that fit your needs, just because there are so many possibilities. In this article, we will describe some guidelines that you can use to determine which hedge funds you want to incorporate into your portfolio and how you can make the decision.

First of all, it’s important to know that while every hedge fund pursues its own strategy, there are some broad categories that allow you to characterize them into different groups. Some hedge funds analyze stocks and look for mispriced valuations; others use macroeconomic data to predict economy-wide trends. These strategies all have different risk profiles because they are exposed to not only different levels of risk, but different risk sources. So your existing portfolio helps to inform your decision, because you want to maintain your diversification. Sometimes, it makes sense to choose a “fund of hedge funds”, which involves investing a small amount of the total stake in each of several funds. This builds in diversification and removes some of the burden of effort for you, the investor, because the managers of the master fund take on the burden of researching hedge funds for you. In the final analysis, the best choice is a fund that complements your overall investment strategy and risk preferences, but still adds diversity to the portfolio.

Finding that ideal hedge fund is a problem of its own. The sheer quantity of hedge funds, and the secrecy of many of their strategies and information, means that searching for hedge funds in a convenient and useful way is a challenge. But you need some way to being able to look though an array of hedge funds so that you can choose the fund or funds that is most suitable for you. The answer is hedge fund databases.

These databases are proprietary collections of real-time data about thousands of hedge funds, with details about strategy, performance, and more. The databases make it possible to search, sort, and otherwise manipulate a deep collection of information, yielding more than enough insight to select the right fund or funds with an efficient expenditure of time and effort. There are two main hedge fund databases that are popular among both institutional investors and individuals. The first is BarclayHedge. BarclayHedge, as the name suggests, is a hedge fund database operated by Barclays. The database is the oldest such list in existence, originating in 1985. BarclayHedge lists over seven thousand different funds with detailed and varied data about every single one of them. The database is well-known because Barclays uses it to create indicies based on the performance of notable hedge funds. Barclays also publishes the BarlclayHedge Managed Fund Report, the most widely circulated analysis of managed funds in the world. The other alternative is the EurekaHedge database. EurekaHedge is a subsidiary of Mizuho, the second-largest bank in Japan. EurekaHedge has a massive global network of listings and connections, despite being only about fourteen years old. It has proven itself as a solid alternative to the older BarclayHedge. Rather than creating indices, EurakaHedge has a list of prestigious awards that Mizuho uses to recognize the top funds in a variety of categories. The database updates monthly with over 130 data points for each fund in its listings, which expand every month as well. EurekaHedge has listings for funds located all over the world, and also hosts frequent networking nights in New York City to promote personal connections for subscribers and managers alike. The database you prefer will come down to characteristics like ease of use and depth of listing. You can experiment with free trials in each database to help you decide which one is a better fit for you.

With all of this information at your fingertips, it is important to distill what matters and what doesn’t. Keep in mind that past performance does not predict future results. Don’t look for funds that have had a string of wins. Instead, select a fund or funds based on how well they fit into your portfolio. The right fund will provide diversity without excessive risk and will have a strategy that you are comfortable with. A detailed understanding of hedge fund strategy and the capability to examine thousands of funds using databases arms you with everything you need to make an informed decision about hedge funds.