There are several differences between these two types of funds and their strategy. We listed some of the largest distinctions:
Hedge funds can invest in public markets and alternative assets. This generally means they are much more liquid than investments made through private equity firms.
Hedge funds may invest to profit either if that specific company or asset goes up and/or down. In private equity or private debt, the goal is to generate value through the success of the underlying company. Hedge funds, on the other hand, can generate profit from companies and assets that are underperforming the market and their industry.
Hedge funds invest in relative performance. Private equity, private debt, and mutual funds tend to generate their returns largely driven by a growing economy and supported by the market momentum. Hedge funds, on the other hand, can generate returns regardless of the main market and economic movements.
These are just a few of the factors that explain why hedge funds and private equity and debt behave in different ways. This also means that each strategy might fulfill a separate and diversifying purpose in a well-structured investment portfolio.