Are you thinking of investing in a hedge fund and find that you have some lingering questions? We will tackle some of the common questions about hedge funds and hopefully allow you to make a decision on which investment vehicle works for you.
What is a hedge fund?
A hedge fund describes a structure as opposed to an investment strategy. The structure has a general partner or manager and investors or limited partners, who come together as a limited partnership. They then use different strategies like bonds, stocks, derivatives amongst others to grow their money.
What does it mean to hedge?
Hedging basically means risk management. The fund manager uses different techniques to mitigate against the risk. For instance, a manager can hedge against a decline in the overall market by selling securities. There are many hedging strategies including selling short, buying and selling of options and, currency future among others.
Hedging does not occur on all funds. The decision to hedge is on a case-by-case basis and it is therefore important that you understand a fund’s performance before you decide whether to hedge or not.
Who can invest in a hedge fund?
There are restrictions on who can qualify to be in a hedge fund. You can qualify to be in a hedge fund if:-
- If you, or you and your spouse have a network in the excess of 1.5 million dollars.
- You have an individual income of $200000 or an income of $300000 together with your spouse. You’ll have to show that you have and this money within the last two years and that you’d be able to continue to earn it in the foreseeable future.
Hedge funds have a wide range of clients including those who qualify as per the requirements above, pensions, funds of funds amongst others.
What strategies do hedge fund managers employ?
There are many strategies used by hedge fund managers and all this depend on the company or the individual. Some of these include equity funds, value, and momentum, buy to hold among others. Talk to your hedge fund manager and let them give you a clear understanding of the strategies they will use to protect your money.
How many investors should a hedge fund have?
The maximum number of 100 accredited investors may invest in one single fund. Qualified purchasers should have more than five million dollars in investment whether individually or jointly with a spouse, a business that has over 25 million dollars in investments or sponsorship by purchasers who qualify.
What would your advice be to someone who wants to invest in a hedge fund?
Be clear about your goals, and look for a fund manager who has the relevant experience in the field, so that they can get for you good investments that will grow your money by applying time-tested strategies. Be sure to keep on adding on to your knowledge base by reading books and getting tips from people have excelled in the field of hedge fund investment.