"To hedge" originally meant "to protect against financial loss". Hedging was the idea behind the world’s first hedge fund, founded by Alfred W. Jones in 1949. Jones’ aim was to create an alternative investment portfolio with successful returns even on investments that showed low or even negative growth when compared with traditional stock and bond markets. Jones wanted to prove that positive returns are possible within both bull and bear markets by using a variety of financial instruments.
Hedge funds are an "all-weather-investment" and are able to achieve profits from rising as well as falling markets. In fact, the less correlation hedge funds have to stocks and bonds, the better. They are considered to be a "market-neutral" investment. The right hedge fund in the right portfolio can minimize risk and optimize performance.
In the world of investing, the hedge fund industry is considered to be the premier option. Only the best fund managers survive, with about half disappearing from the market within the first three years. When choosing a hedge fund manager a solid track record is important. The fund manager should have a record of at least five years of successful trading.