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Net exposure can be contrasted with a fund's gross exposure , which does not offset long and short positions. Net exposure is therefore often a more accurate measure of a fund's amount-at-risk. Key Takeaways Net exposure is the difference between a hedge fund's short positions and long positions, expressed as a percentage. Net exposure should ideally be considered along with a fund's gross exposure.

Understanding Net Exposure Net exposure reflects the difference between the two types of positions held in a hedge fund's portfolio. The gross exposure refers to the absolute level of a fund's investments, or the sum of long positions and short positions. A fund has a net long exposure if the percentage amount invested in long positions exceeds the percentage amount invested in short positions, and has a net short position if short positions exceed long positions.

If the percentage invested in long positions equals the amount invested in short positions, the net exposure is zero. A hedge fund manager will adjust the net exposure following their investment outlook— bullish, bearish, or neutral. Being net long reflects a bullish strategy; being net short, a bearish one. Gross Exposure vs. Even if both the long and short positions move up or down together—in the case of a broad market advance or decline, respectively—the fund may still make a profit on its overall portfolio, depending on the degree of its net exposure.

For example, a net short fund should do better in a down market because its short positions exceed the long ones. During a broad market decline, it is expected that the returns on the short positions will exceed the losses on the long positions. However, if the long positions decline in value while the short positions increase in value, the fund may find itself taking a loss, the magnitude of which will again depend on its net exposure.

Pros Measures fund manager's expertise, performance Indicates fund's vulnerability to volatility Cons Should be considered alongside gross exposure May not reflect sector or other specific risks Example of Net Exposure Looking at how a fund's net exposure varies over the months or years and its impact on returns gives a good indication of the managers' commitment to and expertise on the short side and the fund's likely exposure to swings in the market.

The years were extremely volatile, with large up and down stock market moves driven by COVID and geopolitical events, making it a potentially tough period for some hedge funds. Renaissance Technologies Renaissance Technologies is a New York-based quantitative hedge fund that uses mathematical and statistical methods to uncover technical indicators that drive its automated trading strategies. Renaissance applies these strategies to U. Mathematician Jim Simons founded Renaissance Technologies in Forbes lists Simons as the 68th wealthiest person in the world as of Jan.

Mathematician Peter Brown is the current chief executive. Man Group This British hedge fund has more than years of trading experience. It started in as an exclusive supplier of rum to the Royal Navy, later getting into the sugar, coffee and cocoa trading business.

Elliott Management Elliot Management describes its investment mandate as "extremely broad" and encompassing of almost every asset type: distressed securities , equities, hedging and arbitrage positions, commodities, real estate-related securities, etc. It had earlier acquired British bookseller Waterstones. The company is based in New York and was founded by Paul Singer in The company uses quantitative analysis to build mathematical strategies that rely on historical price patterns and other data.

The company offers discretionary advisory services to private funds. The company began managing capital for investors in It focuses on bankruptcies , convertible arbitrage, merger arbitrage, distressed investments, event-driven equities and restructuring situations.

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