Which give more Diversification Hedge fund or Private Equity

CFA Level I Alternative Investments
#1

Two points comes in my mind

  1. The hedge fund is more correlated to the market as when the financal crisis are there, and lag in the up-market, Whereas the PE is investing in any startups or any established business which has few difficulties. The companies selected by PE shows more return then the traditional market and other benefit is you also sit on the board, take active part in the management of the company which is not available in HF , and as you take part in management you yourself control the money and take decisions which I suppose gives better result

The second point confuse me more

  1. The PE fund portfolios might have 15-25 Companies at a time may be more also, But in HF you have numerous amount of companies within every possible sector so the HF gives you more diversification.

so these were my thoughts , What to consider as more Diversification [more amount of different companies-HF or PE with less companies and less correlated]

You might see as if I am more inclined towards PE , nevertheless Can you tell me which gives better diversification in long term and short term, I am open for any other additional points if you want to add.

#2

Depends on HF style. HF vs PE - I would go for HF. Do you work at HF?

#3

No

#4

diversification is a function of the correlation between your portfolio and the “other instrument” (which is the hedge fund or PE). Hedge funds have a variety of investing styles. PE may have invested in “companies” very similar to your own.

So essentially this is not a question that has a straight answer.

#5

Thanks to both of you