What Are Hedge Funds And Should I Invest?

The term 'hedge funds' is one that sometimes causes some confusion to those who are unfamiliar with the financial industry

. In this article we'll look at how hedge funds work and what part they play in the modern economy.

Hedge funds are said to have been brought about in 1949 by a certain Alfred Winslow Jones. The name really comes from the gambling world, where 'hedging' means to spread your risk around various betting options. Hedge funds do this with a variety of different commodities and shares. It is usual for the fund manager to take a performance related slice of the profits, thus inspiring him or her to do their very best for their clients.

In the modern financial services industry, the term is something of a misnomer, as not all of these funds actually hedge their bets. Short selling and derivatives are both very common methods of investment. Each fund has its own investment strategy and these can vary a great deal. For those who are unfamiliar with hedge funds, it can all seem very complex, which is why it is left to the professionals to manage.

In the current economic climate it is true to say that if one section of the economy performs badly, and a hedge fund has shares in a related company, then the other shares or commodities will in theory drag the overall value of the fund up again. There is obviously still an element of risk in all this trading, and anyone who enters into a hedge fund investment must understand that there is still a risk.

A management and performance fee are both paid to the performance fee. It is thought that at its peak in 2008, the industry was worth about 2.5 trillion dollars. The management fee is calculated as a percentage of the net asset value, while 20% of the fund's profit is often awarded to the fund manager.

The hedge fund, even though it is something of a misnomer, remains a very powerful way to invest money in a way that keeps risk to a minimum. There are great deal of strategies used by then many hedge fund managers, too numerous to go into in this article. But some of the strategies you might hear include style, market, influence, exposure, sector, and many others. If you are interested in hedge funds, you should go to your nearest financial advisor to find out which one would be best suited to your ambitions and approach to risk.

by: Anna Stenning

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