This chapter explores the degree to which hedge funds’ performance is attributable to a self-declared style that broadly describes managers’ primary investment focus. Hedge funds’ self-declared styles and strategies are meant to be descriptive and to attract investor capital seeking exposure to that strategy and opportunity. Hedge fund strategies have evolved as managers uncover and exploit new opportunities. In practice, even when a majority of investor capital is dedicated to a primary strategy, managers complement a primary strategy with other positions in an attempt to earn positive returns. The freedom with which managers can operate regarding regulation and the breadth of financial instruments available make long-term and clear categorization of hedge fund styles difficult. Although research shows that many funds consistently deliver superior returns in a given style, many also deliver alpha, a positive return that is not attributable to any style or risk factor.
