Alternative Investment Funds (AIFs)

These funds may employ complex trading strategies, including leverage through investment in listed or unlisted derivatives. They are often considered to be higher risk, but they are one of the most popular and the most significant categories of funds from the sellers’ and buyers’ perspectives because this category has the maximum number of funds, as well as a maximum number of investors.

• Hedge Funds: Use various strategies to generate returns, including short selling, leverage, and derivatives.
• Quantitative Funds: Utilize mathematical and statistical models to identify investment opportunities.
• Funds of Funds: Invest in a portfolio of other AIFs or mutual funds to diversify exposure.
• Special Situation Funds: Target unique or opportunistic investments, such as mergers, acquisitions, and turnarounds.

Category III Alternative Investment Funds (AIFs) are often known for their complex trading strategies and can be further divided into Long Only Funds and Long Short Funds. Here’s a closer look at both:

Long Only Funds:

Long Only Funds within Category III AIFs invest with the expectation that the selected securities will rise in value. The “long” position means buying and holding the securities with an optimistic outlook on their future performance. These Funds are more traditional in their approach, seeking to profit from asset appreciation over time.

Characteristics of Long Only Funds:

• Investment Strategy: Primarily invests in assets like stocks, bonds, or commodities, expecting them to appreciate over time.
• Risk Profile: Generally considered lower risk than Long Short Funds, as they do not involve short selling.
• Returns: Potentially provides steady returns in rising markets but may be vulnerable to market downturns since there is no hedging against declines.
• Investor Suitability: Suitable for investors with a medium to long-term investment horizon and a positive outlook on the market or specific sectors.

Long Short Funds:

Long Short Funds employ a more complex strategy that involves taking both long positions (buying with the expectation of a price increase) and short positions (selling with the expectation of a price decrease). The aim is to profit from both rising and falling markets, making it a more versatile strategy, but they also introduce more complexity and risk.

Characteristics of Long Short Funds:

• Investment Strategy: Simultaneously buys securities expected to increase in value and short sells those expected to decrease. This can provide a hedge against market volatility.
• Risk Profile: Often considered a higher risk due to the complexity of managing both long and short positions. The leverage used in short selling can amplify losses.
• Returns: Potential to generate profits in both rising and falling markets, but the complexity of the strategy may lead to varied performance.
• Investor Suitability: Generally suitable for more sophisticated investors who understand the risks and complexities involved in long and short strategies.