Alternative investments are a new but fast growing phenomenon in the South African market, hedge funds in particular were introduces to our market in the year 2000. Assets under management by hedge funds have enjoyed fast growth over the years relative to assets managed by mutual funds. Including hedge funds in an investment portfolio represents a unique proven opportunity for pension funds to protect their investments during bear markets. Unfortunately only a limited number of investors outside the industry understand what factors drive returns in hedge fund strategies. The hedge fund industry is still a mystery to many investors who as a result have not been able to take advantage of absolute returns generated through investing in hedge funds. This quantitative research aimed to determine which dominant factors drive strategy aggregate returns in the Hedge Fund Industry through correlation. It also aimed to analyse regression of these factors to returns on different strategies as well as among themselves. Lastly to develop models of hedge fund aggregate returns by equity strategy using the Arbitrage Pricing Theory (APT) model. Results of the research show that the Mid Cap index is the primary driver of equity strategies selected in this research. The Long Short interest rates as the secondary driver, the Long Bias has the small cap index and global markets as the secondary driver, for the Market Neutral strategy has a short position in small caps as its secondary performance and resource indices are the secondary performance drivers for the Global Macro strategy. / Dissertation (MBA)--University of Pretoria, 2010. / Gordon Institute of Business Science (GIBS) / unrestricted