The Importance of Hedge Funds: The point of View of Insurance Companies and Other Institutional Investors

Hedge funds invest capital of a limited number of wealthy individuals and institutional investors' in high-risk and high-return investments. English origin of the word hedge means to protect, enclose, fence and initially word hedge corresponded to the characteristics of these funds. In modern business conditions, word hedge has different interpretation because they usually take highly speculative position, which in combination with large amount of capital can be very risky. By investing in hedge funds, capital owners can achieve positive absolute returns as well as enhanced portfolio diversification. The aim of this paper is to explain the concept, basic characteristics and essence of the hedge funds and to point out the connection between insurance companies and other institutional investors and hedge funds from the different aspects, through the convergence of capital markets and insurance markets.