Hedge Funds
Hedge funds aren't perhaps as they
once were the object of mystified fascination
on the part of ordinary investors, but they are
still scary things for anyone without 100K to
blow and not worry about it.
Hedge funds derived their nickname
from their strategy of taking long and short positions
in the stock of companies, allowing them to hedge
against macro-economic factors, while at the same
time benefiting from the individual performance
of specific companies.
Hedge funds offer the potential for attractive
returns, and are a lot more nimble than traditional
mutual funds or other investment structures, which
makes them an especially suitable option in volatile
or falling markets (sound familiar, anyone?).
They require high minimum investments, and until
recently, were only allowed to accept 'accredited',
or 'qualified' investors.
Their special position with regard to the regulatory
authorities in most countries means that marketing
of hedge funds to the general public has been
severely restricted.
However, despite these obstacles, hedge funds
grew steadily growing in popularity until 2008,
when the credit crunch caused a period of shrinking
asset values, raising a number of issues for regulators,
financial service providers, and investors alike.
2009 however saw a dramatic recovery for most
of the funds that had survived.
In reality, less than 5% of the world's hedge
funds utilise 'risky' investment strategies such
as global macro or emerging markets. Most hedge
funds only use derivatives for offsetting market
risk, and many do not use leverage at all. (Leverage
is the extent to which an investor, business,
or fund is using borrowed money to finance transactions).
Be that as it may, securities regulators have
always been keen that inexperienced domestic investors
are not exposed to any more risk than is strictly
necessary, and one area in which they do impose
strict regulation for hedge funds is in the barriers
they place in the way of investors themselves,
who are often required to demonstrate a significant
level of assets.
There is a great deal of helpful
material on hedge funds in investorsoffshore,
and for that matter on our other sites as well,
so here are some links to relevant parts of our
own and other sites:
A
Guide To Hedge Funds - if you aren't George
Soros. A practical introduction to hedge funds
for people who may not be on the Forbes Rich List,
but aren't exactly poor, either.
Hedge
Funds Clipped is our special report on the
state of the hedge fund world after it was hit
by the 2008 downturn.
The
Wikipedia article on hedge funds is factual
and helpful.
The
Hedge Fund Association has quite useful
information on more technical aspects of hedge
funds, although naturally you can guess whose
side they are on!
The
SEC has a good list of checks to make before
consdidering a hedge fund investment.
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