Hedge Funds are professionally managed investment funds which are designed to provide absolute returns with low-correlation to the overall securities markets. Hedge funds serve the investment needs of sophisticated institutional and accredited investors and as a result they do not receive the same level of regulations as other pooled investment accounts like mutual funds. For this reason hedge fund due diligence is exceptionally important. Hedge funds are typically more aggressively managed through the use of futures and derivatives securities that can leverage returns and/or limit downside risks.
Hedge funds investment strategies rely on the unique ability and insights of hedge fund managers that make high-risk, speculative investment decisions about securities market indexes, debt instruments, currencies and commodities through the use of use of leverage, derivatives contracts, futures contracts, price arbitrage to realize greater risk-adjusted returns than traditional investments. Hedge fund investment strategies include:
- Managed Futures Strategies;
- Global Macro Strategies;
- Long/Short Equity Strategies;
- Emerging Markets Multi-Strategies;
- Event Driven Strategies; and
- Multi-Strategies (Fund of Funds).
The securities industry experience with institutional investors and high net worth (HNW) accredited investors have led to the development of hedge funds utilizing mutual funds as the investment vehicle. Only certain investment strategies are conducive to use with mutual funds. Mutual funds provide access to hedge fund investment strategies for retail investors which are bundled into more liquid and regulated investment vehicles. Many consider the trend towards greater use of hedge fund-type investment strategies has been accelerated over the last decade due to the poor investment returns realized by investors that utilized traditional investments in buy-hold strategies.
A financial advisor can review your current holdings and determine the appropriate investment allocations in hedge fund investments based on an investment policy statement designed to reach your True North.
