Alex Krüger Highlights Evolving Definition of 'Hedge Fund' as Some Managers Disregard Traditional Hedging

Economist and trader Alex Krüger recently sparked discussion on social media regarding the common misconception surrounding the term "hedge fund," asserting that many still believe these funds primarily engage in hedging by taking offsetting positions. Krüger's observation, shared on September 19, 2025, pointed to a disconnect between public perception and the operational realities of some prominent investment firms.

Krüger's tweet directly referenced a notable quote from billionaire hedge fund manager David Tepper, founder of Appaloosa Management. In the exchange, an interviewer asked Tepper, "you're a hedge fund, how do you manage your risk, what's the counter that you put on just in case?" Tepper reportedly responded, "you know what, I am sitting here in a suit, my counter bet is I don't care." This anecdote underscores the shift in strategy for some funds.

Historically, hedge funds were designed to "hedge" against market downturns, aiming for absolute returns regardless of market direction. This involved employing sophisticated strategies such as short selling, arbitrage, and using derivatives to create offsetting positions. However, the industry has evolved significantly over the past decades.

Many modern hedge funds now pursue more aggressive, directional strategies, often taking concentrated positions or leveraging market trends without extensive hedging. David Tepper's Appaloosa Management, known for its opportunistic and often contrarian investments in distressed debt and equities, exemplifies a firm that prioritizes generating alpha through bold bets rather than strict hedging. This approach has allowed Appaloosa to achieve substantial returns, though it also entails higher risk exposure. The debate around the true "hedging" nature of these funds continues to be a point of discussion among financial professionals and investors.