Hedge Funds Guidance
A fund of hedge funds represents a diversified portfolio of unrelated hedge funds. This type of investment provides its investors with many benefits. One of them is the decrease of the risk levels of an investment portfolio.
A fund of hedge funds represents a portfolio of unrelated hedge funds that is characterized by a high degree of diversification.
The hedge fund industry has started to gain an increasing popularity, which has led to the rising instances of fraud. As a result the SEC has embarked on the implementation of several rules that are intended to limit the cases of schemes.
Hedge funds have gained an increasing popularity thanks to the many benefits they offer to their investors. They have managed to make positive returns under the conditions of both falling and rising equity and bond markets.
Many investors believe that hedge funds experience a high level of volatility. However, this is not the case. This commonly held misconception is based on the assumption that hedge funds apply global macro strategies.
The hedge fund industry has attracted many pension funds, endowments, private banks, insurance companies and etc. by its many advantages. They typically select them for the purpose of minimizing the volatility of their portfolios as well as for increasing the generated returns.
The overall success of hedge fund strategies is facilitated by the independence of hedge funds from the movement of the equity market.
Hedge funds provide investors with many investment possibilities and tools that are not available to mutual fund investors. The latter are subject to different regulations by the SEC (Securities and Exchange Commission), which prevent them from applying such strategies as leverage, short selling, derivatives and etc. which hedge fund investors can freely apply.
The hedge fund industry enjoys high popularity among investors, which is shown by its estimated value of $1 trillion. There are around 8350 hedge funds that operate within it. Additionally, the hedge fund industry enjoys an approximate growth of 20% every year.
The first success of hedge funds was announced in 1966 when several of them has managed to outperform all of the mutual funds. Success was achieved despite the high incentive fee, which during these years was around 20%. Hedge funds managed to outperform all of the mutual funds thanks to their significantly higher rate of return.
The general activities in the hedge fund field have been under the close supervision of the SEC due to the many misuses on the part of several advisors.
Hedge funds are frequently recommended as a place for investment whenever the market is going down. Do not fall in the common mistake of considering hedge funds as a type of a mutual fund. They are not!