Opportunistic behavior (opportunism) is understood as self-interest seeking behavior and involves the identification and exploitation of beneficial (pecuniary or nonpecuniary) opportunities, such as investment opportunities or the opportunity to gain decision-making powers.
When opportunism is described in the context of the new institutional economics, the idea of self-interest maximization is commonly complemented by some form of guile or deceit, such as distorting or withholding information when entering into a contract to mislead or confuse the opposite party to the contract, or hiding actions after the conclusion of the contract.
Irrespective of any possibly guileful or deceitful behavior, hedge fund investing is opportunistic in two ways. First, hedge funds complement an investor’s existing investment opportunity set, because by investing in a hedge fund the investor receives the opportunity to benefit from investments in assets, for example, late stage private investment, or from investment strategies such as short selling that previously were not obtainable.
Second, most hedge fund strategies explicitly involve the identification and exploitation of profitable single investment opportunities such as arbitrage opportunities, event-driven opportunities, or timing opportunities.
The identification of profitable investment opportunities is only possible when the hedge fund portfolio manager has superior skill and/ or superior information compared to other investors. Opportunistic hedge fund strategies are not necessarily restricted to particular investment styles or asset classes.