Making Sense Of The Hedge Fund Index

Hedge funds are rather unique among the various financial investment vehicles that individuals

, companies and even other investment funds can buy into for the purpose of gaining profits and earnings. Because these special and distinctive funds are not tightly regulated like other investment vehicles, one thing that is helpful in comparing these investment pools is a hedge fund index.

This index is a listing of various hedge fund services and pools that makes it easy for potential investors in these funds to compare hedge fund performance. Because a hedge fund manager is not required to make the financial activity of his fund available publicly, not all of these funds that operate are listed on these types of performance tracking indexes.

One primary purpose of a manager of a hedge fund is to decide whether or not to have their private investment pool listed with a hedge fund index, or to simply allow investors to find them so they can expand the capital base of their pool. The more capital that is available to the manager to invest, the better investment opportunities they can take advantage of and ultimately the better the potential of making higher profits for the fund.

Even though a hedge fund has very few regulatory rules that they have to operate under, there are still some limitations in how they must operate. One of these limitations is the number of investors they may have before they are required to register with the Securities Exchange Commission (SEC), which is the governing body for investment companies in the United States. A hedge fund with more than 100 individual investors has to be registered with the SEC. Because of this, the majority of hedge fund managers prefer to keep the number of investors limited.

With this in mind, it is easy to understand why there are many established and successful hedge funds that have operated quietly for many years, and that are never seen on a hedge fund related index. Most fund managers are much more interested in being as unregulated as possible so that they can move quickly in and out of various stocks and other investment vehicles, giving them the highest degree of leverage and maneuverability in the market.

A new manager of a hedge fund is motivated to get their fund put on a hedge fund index. Once their fund is listed, they will have potential investors contacting them based on the performance and comparisons the investor sees from the index. It is important to keep in mind that the newest of these funds will have a very short track record, so investors need to be cautious when putting their money into a newer hedge fund pool.

by: David East

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