A healthy, strong economy requires a financial system that moves funds from people who save to those who have productive investment opportunities. A hedge fund is an actively managed fund that seeks absolute return. yield, that is, a return, whether the markets go up or down. Hedge funds are offshore investment funds that participate in speculation using credit or borrowed capital. Hedge funds are not, but they are often confused about getting the same risk model as normal investments, disregarding the fact that they are often measured by the same quantitative measurement standards, hedge funds exhibit qualitative risks that make them unique to assess and analyze. There are many different areas to consider when assessing whether modern hedge funds are no longer able to successfully de-risk and are now struggling to deliver absolute returns to investors; leverage, short selling, inflation, recession, Markov chain analysis and other aspects which combined provide an answer on hedge funds. A hedge fund has 39 counting strategies in which it uses several different investment strategies to invest in a large amount of assets to generate a higher return for a given level of risk than expected from normal investments. Hedge funds are managed to generate a consistent level of return, regardless of market performance. Leverage is one of the main reasons why hedge funds suffer huge losses; this is because any negative effect on returns is amplified and, even worse, leverage has been the main reason why companies like Amarnth have gone bankrupt. Leverage is the ability to complete a transaction with only a small amount if investors capitalize. There are many ways to do this, one way is to borrow all or most of the money; another is to offer a bonus......middle of paper......Mr. Müller. (2011). A regime-switching regression model for hedge funds. Available: http://www.itwm.fraunhofer.de/fileadmin/ITWM-Media/Zentral/Pdf/Berichte_ITWM/2011/bericht_199.pdf. Last accessed March 12, 2014. Hedge Funds: Managing Risk for Absolute Returns. (2002). Advisor's Edge, 5(1), insert 4-6. Retrieved from http://search.proquest.com/docview/221194626?accountid=17193 Akay, O. (2013). Hedge fund contagion and risk-adjusted returns: a dynamic Markov switching factor approach. Available: http://www.treasury.gov/initiatives/ofr/research/Documents/OFRwp0006_AkaySenyuzYoldas_HedgeFundContagionandRiskAdjustedReturns.pdf. Last accessed March 12, 2014. GFM News. (2014). IBISWorld launches market report on the hedge fund industry. Available: http://www.hedgeweek.com/2014/03/18/198773/ibisworld-launches-hedge-funds-industry-market-report. Last access 18/03/2014.