The point of a hedge is to make money for clients regardless of
market direction. Hedge funds will buy and hold stocks, they will sell short,
as well as buy and sell options. These particular funds differ from most
traditional funds, which adhere to the buy and hold concept. In these
particular funds, an investor will pay a performance fee along with management
fee, when it performs well.
These investments, which include foundations, college endowments,
and pension funds, are valued at billions of dollars. Over one percent assets
of financial institutions consists of these funds, with total assets around $2
trillion. Many large funds choose this type of fund because of their potential
upside during a bull market.
These funds can give smart returns dependent on how they are
positioned in the market and how strong the market is performing. If
investments of this sort are leveraged well, the investor will realize size
able to returns as opposed to other funds. With this in mind, one should even be
cautious of the potential losses that can occur when the wrong investment
vehicle is being leveraged. In short, take your time and do your research
and analysis before choosing any type of fund.
The crash in 2008 seemed to inspire large pension funds into
direct hedge fund investing. A lot of people were hurt by the 2008 crash,
lending to more hedge fund investing to recuperate some losses. The rules of
hedge fund investing have become stricter since 2008, limiting participation to
accredited investors, weening out the small, private investor.
A hedge fund managers uses the same information available to all
investors. For instance, you did not need to be a hedge fund manager to
evaluate some opportunities in Japan after the tsunami. However, the sheer size
of these type of funds lends to significant research and investment
opportunities that an ordinary investor does not have. However, on the same
note, these large funds can sometimes find it difficult to find a place to
invest billions of dollars. When this kind of fund takes a position in an
equity, it changes the direction of the market.
An individual investor can profit from studying a hedge fund,
being aware of where the money is going. A lot of successful investors yield
high returns by mirroring a successful hedge funds investment strategy. How
available that information is depends on the individual investors savvy. Again,
hedge funds move the market.
By Sean F Kitt
