ALRiM: Luxembourg Association
of Risk Management

Introduction In the ever-evolving landscape of the global economy, two powerful international groups — the Group of Seven (G7) and the Group of Twenty (G20) — play a pivotal role in shaping global financial policies, trade frameworks, and market stability. These organizations consist of the world’s most influential economies, both advanced and emerging, that come together to coordinate policy responses to global challenges. Their influence extends across economic growth, climate action, trade regulations, technology, and geopolitical stability — all of which have profound effects on the world market. This essay explores the formation, structure, objectives, and economic impact of the G7 and G20, while also examining their comparative roles in global governance and market coordination. 1. The G7: Origins and Evolution 1.1 Historical Background The Group of Seven (G7) was formed in 1975 amid the oil crisis and global financial instability of the 1970s. The initial members were the United States, United Kingdom, France, Germany, Italy, and Japan, with Canada joining in 1976, making it seven nations. The European Union (EU) later became a participant in G7 meetings but not a full member. Initially, the G7 served as an informal forum for leaders of advanced economies to discuss economic coordination and policy responses to inflation, exchange rates, and oil shocks. Over time, the agenda expanded to include trade liberalization, development aid, climate change, digital innovation, and global security. 1.2 Composition and Characteristics The G7 countries collectively represent: Around 45% of global GDP (as of 2025), Approximately 10% of the global population, and A major share of global trade, technology, and financial capital. These nations are highly industrialized, democratic, and share values of free-market capitalism, human rights, and rule-based governance. The G7 does not have a formal secretariat or permanent institution. Instead, it operates through annual summits hosted by member nations on a rotating basis. Decisions are not legally binding but carry immense political and economic weight due to the influence of its members. 1.3 Core Objectives The main objectives of the G7 are to: Promote global economic stability and sustainable growth. Coordinate monetary and fiscal policies among advanced economies. Support developing nations through aid and debt relief. Strengthen free trade and oppose protectionism. Address climate change and energy transitions. Manage global crises such as pandemics, conflicts, and financial shocks. 1.4 G7’s Role in the Global Market The G7 shapes the global market primarily through policy influence rather than direct control. Its discussions often set the tone for international financial institutions like the IMF, World Bank, and WTO. For instance: Monetary coordination: Central banks of G7 nations often align on interest rate policies and inflation control. Trade frameworks: The G7 promotes rules-based trade and opposes protectionist barriers. Climate finance: Members pledge billions to help developing countries transition to clean energy. Crisis management: The G7 coordinated the global financial response to the 2008 crisis and the 2020 pandemic. Because these economies dominate global financial systems — with the U.S. dollar, euro, pound, and yen as key reserve currencies — their decisions have direct impacts on currency markets, investment flows, and commodity prices. 2. The G20: Formation and Global Reach 2.1 Background and Formation While the G7 represents advanced industrial economies, the G20 (Group of Twenty) was created in 1999 to bring emerging and developing economies into global decision-making. The Asian financial crisis of 1997–1998 exposed the need for a broader, more inclusive framework that could address interconnected global risks. The G20 includes 19 countries plus the European Union, representing both advanced and emerging economies such as China, India, Brazil, South Africa, Mexico, Indonesia, Saudi Arabia, and others. Together, G20 members account for: Over 85% of global GDP, Around 75% of global trade, and About two-thirds of the world’s population. 2.2 Structure and Operation Like the G7, the G20 has no permanent secretariat. It functions through: Annual Leaders’ Summits, Finance Ministers and Central Bank Governors’ Meetings, and Working groups on topics like climate, digital economy, health, and labor. The presidency rotates annually, with the host nation setting the year’s agenda. For example: India (2023) focused on “One Earth, One Family, One Future.” Brazil (2024) emphasized sustainable growth and inclusive development. 2.3 Objectives of the G20 The G20’s mission is broader and more inclusive than the G7’s. Its key objectives include: Promoting global economic stability and growth. Ensuring financial market regulation to prevent crises. Encouraging international trade and investment. Addressing climate change and sustainable development. Reducing global inequality and supporting low-income nations. Enhancing digitalization and innovation in the global economy. The G20’s broader membership allows it to address issues that affect both developed and developing nations, making it more representative of global interests. 3. The G7 and G20’s Influence on the World Market 3.1 Monetary and Fiscal Coordination Both the G7 and G20 play a crucial role in coordinating monetary and fiscal policies. During crises like the 2008 Global Financial Crisis, the G20 facilitated coordinated stimulus packages that prevented a deeper recession. Similarly, during the COVID-19 pandemic, both groups supported liquidity programs and vaccine funding initiatives. Such coordination stabilizes global capital markets, reduces exchange rate volatility, and boosts investor confidence. 3.2 Trade and Investment The G20 has become the key platform for promoting open and fair trade. It supports WTO reforms, encourages global value chains, and resists protectionism. Emerging economies like India, China, and Brazil have gained greater influence in shaping international trade rules. The G7, while smaller, continues to influence trade through strategic alliances, sanctions, and technological cooperation. Their joint efforts shape policies on digital trade, semiconductor supply chains, and energy transition — all of which significantly affect global stock and commodity markets. 3.3 Global Financial Regulation After the 2008 crisis, the G20 spearheaded reforms in global financial regulation through institutions like the Financial Stability Board (FSB). This helped improve transparency, banking supervision, and systemic risk management. The G7, meanwhile, remains influential in setting standards for banking supervision, anti-money laundering (AML), and cross-border taxation, affecting multinational corporations and global investors. 3.4 Sustainable Development and Climate Change Both groups have prioritized sustainable growth. The G7 commits to achieving net-zero emissions by 2050 and financing climate initiatives in developing nations. The G20 promotes green finance, renewable energy investment, and the phasing out of fossil fuel subsidies. As climate-related risks increasingly affect agriculture, manufacturing, and infrastructure, these commitments influence global commodity prices, investment trends, and corporate valuations. 3.5 Technology and Digital Economy In the digital era, both G7 and G20 discussions address issues like artificial intelligence (AI), cybersecurity, data privacy, and digital taxation. Their cooperation helps create common standards that shape global tech markets and innovation ecosystems. For example, the G7’s Digital Trade Principles and the G20’s AI frameworks guide how countries regulate cross-border data and digital platforms — crucial in a world where tech firms dominate market capitalization. 3.6 Geopolitical Stability and Market Confidence Geopolitical tensions — such as the Russia-Ukraine war or U.S.-China rivalry — have significant global market consequences. The G7 often coordinates sanctions, defense support, and diplomatic pressure, while the G20 acts as a broader dialogue platform to prevent fragmentation. Their coordinated responses help maintain market predictability, protect energy supply chains, and influence investor sentiment. 4. Criticisms and Challenges Despite their global importance, both G7 and G20 face criticisms: 4.1 Representation Gap The G7 is criticized for being elitist, representing only advanced nations. The G20, while more inclusive, still excludes many smaller developing countries. 4.2 Implementation Challenges Decisions made in summits are not legally binding, making implementation dependent on national will. 4.3 Geopolitical Divisions Internal divisions — such as tensions between the U.S. and China or Russia’s participation in G20 — can reduce policy effectiveness. 4.4 Climate and Inequality Gaps Although both groups pledge climate and development aid, actual disbursement often falls short of commitments, leading to credibility issues. 5. The Future of G7 and G20 in Global Governance As globalization evolves, the G7 and G20 are expected to adapt to new challenges: Managing the AI-driven economy and digital finance. Addressing supply chain resilience post-pandemic. Coordinating on debt restructuring for developing nations. Ensuring energy security amid green transitions. Promoting inclusive and equitable growth to reduce inequality. Their relevance lies in their ability to bridge the gap between advanced and developing economies and create a stable, rule-based global market that fosters sustainable progress. Conclusion The G7 and G20 are twin pillars of international economic governance, each with distinct strengths. The G7 provides leadership and stability through the advanced economies’ policy coordination, while the G20 ensures inclusivity and representation of emerging markets in global decision-making. Together, they form the foundation of global cooperation — influencing trade policies, financial systems, environmental sustainability, and technological standards that shape the world market. As global interdependence deepens, their ability to collaborate and implement forward-looking policies will determine the resilience and prosperity of the international economy in the decades ahead.

Introduction In the 21st century, global finance has undergone a profound transformation. Investors, corporations, and governments are increasingly recognizing that economic growth must go hand in hand with environmental protection, social responsibility, and ethical governance. This shift has given rise to two major trends — ESG (Environmental, Social, and Governance) investing and Green Finance. Both concepts aim to align financial decision-making with sustainability goals, addressing global challenges such as climate change, inequality, and responsible corporate behavior. ESG investing and Green Finance are not just moral imperatives; they are strategic approaches that seek long-term value creation, risk management, and the transition to a low-carbon economy. 1. Understanding ESG Investing ESG investing refers to an investment strategy that incorporates environmental, social, and governance factors into financial analysis and portfolio management. It goes beyond traditional financial metrics by assessing how companies manage sustainability-related risks and opportunities. Environmental criteria evaluate how a company impacts the planet — through carbon emissions, waste management, water usage, renewable energy adoption, and biodiversity protection. Social criteria examine how a company treats people — including employees, customers, suppliers, and local communities. It focuses on labor rights, diversity, equality, workplace safety, and human rights. Governance criteria assess corporate ethics, transparency, board diversity, executive compensation, and shareholder rights. In essence, ESG investing combines profitability with purpose, allowing investors to generate financial returns while contributing to positive social and environmental outcomes. 2. Evolution and Growth of ESG Investing The origins of ESG investing can be traced back to socially responsible investing (SRI) movements of the 1960s and 1970s. Activist investors avoided industries such as tobacco, weapons, or apartheid-linked businesses. However, ESG investing evolved beyond exclusionary screening to focus on proactive investment in sustainable and responsible companies. A significant milestone occurred in 2006, when the United Nations launched the Principles for Responsible Investment (UNPRI), encouraging institutional investors to integrate ESG principles into their investment decisions. Since then, ESG investing has grown exponentially. By 2025, the global ESG assets under management (AUM) are projected to exceed $50 trillion, representing more than one-third of total global assets. Major asset managers like BlackRock, Vanguard, and Fidelity have incorporated ESG frameworks into their portfolios, while ESG-focused funds have outperformed traditional funds in many market cycles, particularly during crises such as the COVID-19 pandemic. 3. Key Components of ESG (a) Environmental Factors Environmental aspects are central to ESG investing. Investors assess a company’s carbon footprint, energy efficiency, waste disposal practices, and compliance with environmental laws. For instance, companies that transition toward renewable energy sources or adopt circular economy principles are considered environmentally sustainable. Important sub-factors include: Greenhouse gas (GHG) emissions and carbon neutrality goals Renewable energy investment Water conservation and pollution control Sustainable supply chains Biodiversity preservation For example, Tesla and Ørsted attract ESG investors for their leadership in clean energy and low-carbon technologies. (b) Social Factors The social dimension emphasizes a company’s treatment of people and communities. This includes fair labor practices, human rights, product safety, customer privacy, and diversity initiatives. A company’s reputation and long-term success often depend on social responsibility and stakeholder trust. Key areas include: Employee welfare and workplace safety Gender and racial diversity in leadership Consumer protection and ethical marketing Community development programs Supply chain ethics Firms like Unilever and Patagonia are known for integrating social responsibility into their corporate strategy, enhancing both brand loyalty and long-term profitability. (c) Governance Factors Governance ensures accountability, transparency, and ethical leadership. It involves assessing how decisions are made within an organization and whether management aligns with shareholders’ and stakeholders’ interests. Governance evaluation considers: Board composition and independence Executive pay and accountability Anti-corruption policies Shareholder voting rights Ethical corporate conduct Poor governance can lead to scandals and losses, as seen in corporate collapses like Enron or Wirecard, where lack of oversight and transparency destroyed investor confidence. 4. ESG Investing Strategies Investors use several methods to implement ESG principles: Negative Screening: Excluding companies involved in harmful industries (e.g., fossil fuels, tobacco, or weapons). Positive Screening: Selecting companies that perform better on ESG metrics than their peers. Best-in-Class Approach: Investing in the most sustainable companies within each sector. Thematic Investing: Focusing on specific sustainability themes such as renewable energy, clean water, or gender equality. Impact Investing: Targeting measurable social and environmental outcomes alongside financial returns. ESG Integration: Incorporating ESG data into traditional financial analysis to evaluate overall risk-adjusted returns. These approaches allow investors to align their portfolios with their values and long-term sustainability goals. 5. Importance and Benefits of ESG Investing ESG investing offers multiple advantages to investors, businesses, and society. Risk Mitigation: Companies with strong ESG performance tend to manage risks better, reducing exposure to legal, environmental, and reputational crises. Financial Performance: Numerous studies show a positive correlation between ESG integration and long-term financial returns. Sustainable firms are often more efficient, innovative, and resilient. Investor Demand: Younger generations, especially Millennials and Gen Z, increasingly prefer ethical investments that align with their values. Regulatory Support: Governments and regulators are promoting ESG disclosures, creating an environment where sustainability becomes a necessity rather than a choice. Corporate Reputation: Strong ESG performance enhances brand image, attracting customers, investors, and top talent. 6. Understanding Green Finance While ESG investing focuses on evaluating sustainability within investments, Green Finance refers to financial instruments and services that directly support environmentally beneficial projects. It aims to mobilize capital toward green initiatives that promote climate resilience, energy efficiency, and ecological sustainability. Green Finance includes a wide range of products such as: Green Bonds – bonds issued to finance renewable energy, clean transportation, and waste management projects. Green Loans – loans with favorable terms for sustainable projects. Green Mutual Funds and ETFs – investment funds focusing on companies or projects that meet environmental standards. Carbon Markets and Credits – mechanisms that incentivize emissions reduction. Sustainable Insurance and Banking – financial institutions offering eco-friendly products and services. In essence, Green Finance channels money into projects that contribute to a low-carbon and sustainable future. 7. The Rise of Green Finance Globally Green finance gained global recognition after the 2015 Paris Agreement, which called for aligning financial systems with climate goals. The agreement encouraged nations to mobilize trillions of dollars in climate finance to limit global warming to below 2°C. Leading economies such as the European Union, China, and the United States have established green finance frameworks. The EU Green Deal and EU Taxonomy for Sustainable Activities provide a clear classification system for green investments. China’s Green Bond Endorsed Project Catalogue guides green bond issuance and has made China one of the largest green bond markets globally. Multilateral institutions such as the World Bank and Asian Development Bank support developing nations in adopting green finance principles. According to the Climate Bonds Initiative, global green bond issuance surpassed $600 billion in 2023, signaling the growing importance of sustainability-linked finance. 8. Relationship Between ESG Investing and Green Finance While both concepts share sustainability as their foundation, they differ in scope and application. ESG investing focuses on evaluating corporate behavior and integrating sustainability into investment decisions across all industries. Green Finance specifically directs capital toward projects that have clear environmental benefits. However, the two are interconnected. ESG investors often allocate capital to green financial instruments, while green finance initiatives rely on ESG metrics to ensure accountability and transparency. Together, they form the backbone of sustainable finance, promoting a more inclusive and climate-conscious global economy. 9. Challenges in ESG Investing and Green Finance Despite their growth, both ESG investing and green finance face several challenges: Lack of Standardization: Different countries and rating agencies use varied ESG criteria, leading to inconsistent assessments and “greenwashing.” Greenwashing Risks: Some companies exaggerate their sustainability claims to attract investors without actual environmental commitment. Data Availability: Reliable ESG data and performance metrics are limited, especially in developing markets. Short-Term Investor Mindset: Many investors prioritize short-term gains over long-term sustainability impacts. Regulatory Barriers: Inconsistent regulations across jurisdictions make it difficult to measure and compare ESG performance globally. Transition Costs: Shifting to sustainable business models requires upfront investments that may deter smaller firms. Addressing these challenges requires global cooperation, transparent reporting, and strong regulatory frameworks. 10. The Future of ESG and Green Finance The future of finance is undeniably green and responsible. Governments, institutions, and individuals are realizing that sustainability is essential for economic resilience and planetary survival. Key future trends include: Mandatory ESG Disclosure: Regulators in the EU, India, and the US are introducing compulsory ESG reporting standards for corporations. Technology Integration: Artificial intelligence, blockchain, and big data analytics are improving ESG measurement and transparency. Sustainable Development Goals (SDGs): ESG investing and green finance will play vital roles in achieving the United Nations’ 17 SDGs by 2030. Green Central Banking: Central banks are increasingly integrating climate risks into monetary policies and lending frameworks. Emerging Market Participation: Developing countries are adopting green finance to address energy transitions and attract foreign investment. Ultimately, ESG and green finance are not temporary trends — they represent a long-term transformation of the global financial system. Conclusion ESG investing and Green Finance have redefined how the world views the relationship between money, ethics, and the environment. They demonstrate that profitability and sustainability can coexist, driving innovation, resilience, and inclusive growth. As climate change intensifies and social challenges persist, the role of finance as a catalyst for sustainable development has never been more crucial. By integrating ESG principles and promoting green financial instruments, investors and policymakers can pave the way toward a more sustainable, equitable, and prosperous global economy. The future belongs to those who not only generate wealth but also protect the planet and uplift society — a vision where finance serves humanity, not just profits.

Introduction Hedge funds represent one of the most mysterious and influential corners of global finance. Often surrounded by secrecy and elite status, they attract both admiration and controversy. While mutual funds are accessible to the average investor, hedge funds are designed for the wealthy—institutions, corporations, and high-net-worth individuals—who seek aggressive growth and diversification. The “secrets” of hedge funds lie not only in their strategies but also in their flexibility, risk-taking ability, and sophisticated financial engineering. This essay explores the structure, functioning, strategies, and inner workings of hedge funds—uncovering the tactics and philosophies that make them powerful engines in the financial markets. 1. What Is a Hedge Fund? A hedge fund is a private investment partnership that pools money from investors and employs a range of strategies to earn high returns, often regardless of market direction. Unlike mutual funds, hedge funds are lightly regulated and have more freedom in how they invest. They can use leverage (borrowed money), short selling, derivatives, and alternative assets such as real estate, commodities, cryptocurrencies, or private equity. The term “hedge” comes from the original goal—to “hedge” against market risk by taking offsetting positions. However, modern hedge funds have evolved into aggressive return-seeking vehicles, willing to take large, calculated risks for potentially outsized profits. 2. The Secret Structure: Limited Partnership Model Most hedge funds operate under a limited partnership (LP) structure: The general partner (GP) manages the fund, makes investment decisions, and assumes full liability. The limited partners (LPs) are the investors who provide the capital but have limited liability. This structure allows hedge fund managers to maintain flexibility and control while protecting investors from excessive risk exposure. The GP typically earns a management fee (2%) of total assets and a performance fee (20%) of profits—known as the “2 and 20 rule.” This incentivizes managers to maximize returns. This performance-based compensation is one of the fund’s “secrets to motivation.” It aligns the manager’s goals with the investors’—both profit when performance is strong. However, it also encourages risk-taking, as the rewards can be massive. 3. The Secret Ingredient: Flexibility and Freedom Unlike mutual funds or pension funds, hedge funds have minimal investment restrictions. This flexibility is their biggest advantage. Hedge funds can: Short sell stocks (bet on price decline) Use leverage to amplify returns Trade derivatives like options, futures, and swaps Invest globally across asset classes Move in and out of positions rapidly This freedom allows hedge funds to profit in bull or bear markets. For instance, during the 2008 financial crisis, some hedge funds—like John Paulson’s—made billions by betting against the U.S. housing market using credit default swaps. 4. Hedge Fund Strategies: The Real Secrets Hedge funds are not a single strategy—they are a collection of sophisticated investment techniques. Some of the most powerful and “secretive” strategies include: A. Long/Short Equity The classic hedge fund strategy. Managers buy undervalued stocks (long) and short overvalued ones (short). The goal is to profit from relative performance rather than overall market direction. Example: If a manager expects Apple to outperform Samsung, they go long Apple and short Samsung, profiting from the spread regardless of whether the tech sector rises or falls. B. Global Macro This strategy exploits global economic trends—interest rates, currencies, commodities, and geopolitical events. Legendary investor George Soros famously used this approach when he “broke the Bank of England” in 1992, betting against the British pound and earning over $1 billion. C. Event-Driven Event-driven funds profit from corporate events such as mergers, bankruptcies, or restructurings. Merger arbitrage is common: buying shares of a company being acquired and shorting the acquirer to profit from the deal’s price spread. D. Quantitative (Quant) Strategies Quant funds use advanced algorithms, machine learning, and statistical models to find patterns in massive data sets. These funds rely on technology and mathematics rather than human judgment. Firms like Renaissance Technologies (founded by Jim Simons) have built mathematical models that consistently outperform markets—a true “black box” secret of modern finance. E. Distressed Securities These funds buy the debt of companies in financial trouble, betting that they will recover or that assets can be sold for more than their current market value. This strategy requires deep expertise in corporate law, restructuring, and valuation. F. Multi-Strategy Large funds diversify across multiple strategies to balance risk and return. These “all-weather” funds can adapt quickly to changing market conditions. 5. Leverage: The Power and the Danger One of the most closely guarded secrets of hedge funds is how they use leverage to amplify returns. By borrowing money, a hedge fund can increase its exposure to profitable trades. For instance, a 10% return on a $1 billion position becomes 20% if the fund borrows another $1 billion. However, leverage also magnifies losses. Many hedge fund collapses—like Long-Term Capital Management (LTCM) in 1998—occurred because excessive leverage turned small losses into disasters. The secret lies in risk management discipline: knowing when to cut losses and when to increase exposure. 6. Risk Management: The Hidden Backbone While hedge funds are often portrayed as reckless gamblers, successful ones are masters of risk management. They use advanced models to monitor: Value at Risk (VaR): the maximum expected loss over a given period. Beta: sensitivity to market movements. Drawdown limits: maximum allowed decline before positions are cut. Some hedge funds employ dedicated risk teams independent of portfolio managers. The secret here is not just in taking risks—but in knowing which risks are worth taking. 7. Information Edge: The Secret Weapon Information is the lifeblood of hedge funds. Successful managers invest heavily in data analytics, market intelligence, and proprietary research. The best funds have access to alternative data—credit card transactions, satellite imagery, social media trends, and supply chain data—that help them detect market trends before others. In essence, hedge funds compete on information asymmetry. The faster and more accurately they interpret data, the greater their advantage. However, this “edge” must stay within legal limits. In the past, some hedge funds were caught in insider trading scandals, revealing the fine line between legitimate research and illegal access to non-public information. 8. The Psychology of Hedge Fund Managers Another hidden secret lies in the psychological resilience of hedge fund managers. The job involves high pressure, rapid decision-making, and emotional control. Successful managers often possess: Contrarian thinking: Going against market consensus. Risk tolerance: Comfort with uncertainty and volatility. Discipline: Following the model or thesis even under stress. Adaptability: Changing strategies when markets shift. In many ways, hedge fund management is as much an art as a science—combining intellect, intuition, and emotional stability. 9. Technology: The New Frontier Modern hedge funds are deeply intertwined with technology and artificial intelligence. High-frequency trading (HFT), machine learning algorithms, and predictive analytics now dominate the industry. Algorithms can execute trades in microseconds, identifying inefficiencies humans cannot detect. The secret advantage of top-tier funds like Two Sigma or Citadel lies in their data infrastructure—massive computing power, real-time analytics, and AI-driven prediction models. These technological tools enable them to extract tiny profits millions of times per day. 10. Secrecy and Regulation Hedge funds are notoriously secretive about their strategies. Their competitive advantage depends on keeping algorithms, models, and data confidential. Unlike mutual funds, they are not required to disclose holdings publicly. Investors receive quarterly or annual reports, but details remain hidden to protect intellectual property. However, after major scandals and financial crises, regulators have increased oversight. The U.S. Securities and Exchange Commission (SEC) now requires large hedge funds to register and disclose basic information about risk and leverage. Yet, compared to other financial institutions, they still enjoy considerable privacy. 11. Hedge Funds and Market Influence Though they represent a small portion of total global assets, hedge funds have an outsized impact on financial markets due to their leverage and trading volume. They can: Move markets through large positions. Provide liquidity during volatile times. Expose overvalued or fraudulent companies (through short selling). Hedge institutional portfolios against systemic risks. However, their power can also destabilize markets if excessive leverage or herd behavior occurs—as seen during the 2008 crisis or the GameStop short squeeze of 2021. 12. The Dark Side: Failures and Risks Not all hedge funds are successful. Many close within a few years due to poor performance, high fees, or changing market conditions. Common causes of failure include: Over-leverage: excessive borrowing leading to collapse. Overconfidence: ignoring market signals. Lack of liquidity: inability to exit positions in time. Misaligned incentives: managers chasing bonuses over long-term success. The hedge fund secret to survival is adaptability—those that continuously evolve with technology, regulation, and global trends endure. 13. The Future of Hedge Funds The hedge fund industry is changing rapidly. Artificial intelligence, blockchain, and decentralized finance (DeFi) are reshaping investment strategies. Investors are demanding lower fees and greater transparency, pushing funds to prove their value. Sustainability is also becoming important. New hedge funds now explore ESG (Environmental, Social, Governance) strategies, blending profitability with ethical investing. The next generation of hedge funds will likely combine AI-driven insights, quantitative analytics, and global macro intelligence—a fusion of technology and human expertise. Conclusion Hedge funds remain one of the most fascinating institutions in modern finance. Their “secrets” are not mystical tricks but a blend of flexibility, innovation, information, and discipline. They thrive on uncovering inefficiencies in the global financial system, exploiting them with speed, intelligence, and precision. At their best, hedge funds bring liquidity, innovation, and market efficiency. At their worst, they amplify volatility and risk. The truth lies in their dual nature—both as engines of progress and mirrors of financial ambition. In the end, the ultimate hedge fund secret is mastery over uncertainty—turning chaos into opportunity through knowledge, technology, and courage.

Climate change has pushed agricultural risks to alarming levels. The intensity and frequency of floods, torrential rains, cloudbursts, windstorms, heatwaves, and droughts have risen sharply, alongside an ever-increasing risk of crop diseases and pest outbreaks. These recurring natural calamities — most recently the catastrophic super flood of 2025 — have left farmers extremely vulnerable. Particularly, small farmers — those holding less than 12.5 acres — are in deep misery in flood-affected areas. Out of 11.7 million farms in the country, nearly 97 per cent of farms are smaller than 12.5 acres, as per the 7th Agricultural Census 2024. In other words, the proportion of such vulnerable farmers is extremely high. Their Kharif crops have already been wiped out, leaving them with no fallback option. Looking ahead, they face two daunting challenges. First, sustaining their families, especially when many have lost stored wheat stocks and, in some cases, livestock as well; and second, securing agricultural inputs for the upcoming Rabi (wheat) crop, whose sowing is just a month and a half away. The government has no comprehensive plan to cope with floods or safeguard farmers’ livelihoods. Instead, it continues to focus on reactive, firefighting responses rather than proactive adaptation measures. Successive governments in the past have largely relied on announcing discretionary relief programmes for affected farmers. But these ad hoc, ex-post measures are often plagued by corruption, bureaucratic delays, and time-consuming procedures. In a recent TV talk show, Khalid Hussain Batth, Chairman of Kissan Ittehad, disclosed that a large number of farmers have still not received the compensation announced for the 2022 floods. Given the growing scale of climate-induced calamities, it has become imperative for the government to shift from a relief-based model to ex-ante risk management mechanisms. This is particularly urgent for floods, which, unlike droughts and heatwaves, have a sudden and devastating impact on vast agricultural lands, often causing long-term soil degradation. As climate change intensifies and agricultural risks mount each passing year, the case for universal crop insurance has never been more compelling The 2025 flood has inflicted unprecedented devastation in Punjab. It is largely due to unchecked settlements on riverbeds in rural areas. Across the Sutlej and Ravi rivers, it is common to see agricultural fields, farmers’ private bunds, and even houses and livestock sheds built on raised platforms after filling up land in the riverbeds. These obstructions have narrowed the river’s natural water-carrying capacity, leading to the inundation of vast tracts that were never previously considered at risk. At the same time, such choke points have placed immense pressure on upstream embankments and bunds, resulting in breaches. Moreover, in several locations, poorly designed highways and river bridges have obstructed the natural flow of floodwaters. For instance, the Baba Farid bridge on the Sutlej river, connecting Pakpattan to Minchanabad, lacks culverts along an eight-kilometre stretch of its approach road. As a result, the river’s decades-old natural waterways, which allow excess water to pass during floods, have been blocked. Similarly, the bridge’s guide banks are too short in length to streamline the river’s flow through the bridge openings. Such design flaws and neglected maintenance of the structures have intensified upstream pressure, leading to widespread destruction. Newspapers and TV talk shows are filled with demands from various stakeholders to remove encroachments from riverbeds. However, it is important to note that unlike canals, rivers naturally shift their course over time. In many instances, they now flow through land privately owned by farmers for generations. Therefore, if the government truly intends to create space for rivers by clearing artificial choke points to avert future devastation — even partially — it will inevitably need to acquire private lands on a large scale under the Land Acquisition Act, 1894, or alternatively enforce the Punjab Irrigation, Drainage, and Rivers Act 2023 (section 4). Equally pressing is the need to strengthen the financial resilience of farmers in flood-prone areas. Unfortunately, the scope of the federal government’s Crop Loan Insurance Scheme has remained narrow and restrictive, which makes them ineffective in many ways. It covers only small- and medium-sized farmers (up to 25 acres) who take agricultural production loans from banks, excluding millions of non-borrowing farmers. Moreover, coverage is limited to major field crops — wheat, rice, cotton, maize, and sugarcane. As climate change intensifies and agricultural risks mount each passing year, the case for universal crop insurance has never been more compelling. Such a scheme should ensure that all farmers — regardless of landholding size, access to bank loans, or crop type — are automatically covered against flood risk, with a meaningful sum insured that can genuinely protect farmers’ livelihoods. Advances in computer-based modelling now make it possible to mark flood-prone areas precisely, factoring in weather forecasts, topography of the area, and hydrological data. In conclusion, creating room for rivers and extending crop insurance to all farmers in flood-prone areas are two fundamental measures needed to address the flood challenge, which carries both technical and humanitarian dimensions. Though these steps demand considerable financial resources, the real question is not about funding but whether the government has the political will to make them happen. Khalid Wattoo is a development professional and a farmer, and Dr Waqar Ahmad is a former associate professor at the University of Agriculture, Faisalabad. Published in Dawn, The Business and Finance Weekly, September 8th, 2025