What Are Long Short AIF Funds?
Long Short AIF funds simultaneously hold long positions in stocks expected to rise and short positions in stocks expected to fall. This dual approach reduces market-beta risk while generating alpha from both directions, making them effective in volatile or sideways markets where pure equity funds struggle.
- Alpha from Both Sides: Profits from rising longs and falling shorts
- Lower Correlation: Reduced beta to broader market vs. long-only funds
- Pair Trading: Sector-neutral trades capture relative value
- Leverage Allowed: Cat III AIFs can use up to 2x leverage for amplified returns
- Derivatives Permitted: Options and futures for hedging and return enhancement
Long Short vs. Long Only Strategies
Key structural differences between long short and long only AIFs:
- Net Exposure: Long short funds target 30–80% net long (vs. 100% for long only)
- Short Book: Typically 20–40% of portfolio in short positions
- Volatility: Lower drawdowns in bear markets due to hedging
- Returns: Target absolute returns regardless of market direction
- Fee Structure: Higher management fee (2–2.5%) to cover short-side costs