subject: An Overview Of A Specialty Investment Fund [print this page] When it comes to investment options, the one that attracts the most is the hedge fund. These funds enjoy quite a reputation some consider it as the best way to gain while others are scared at the thought of it. It is only possible to form the right opinion about the matter if you possess the right knowledge.
What is a hedge fund?
In simple terms, a hedge fund is a specialty fund that has the sole objective of earning profit in all kinds of financial situations. Whether the market conditions are good or bad, it seldom effects what you can gain from investing in these funds. The aim is to preserve and profit even during bad times.
What strategies are used?
Numerous strategies are utilized to achieve this objective. Here is a concise idea about some of the popular techniques.
Long-short equity this involves investing in an asset that is predicted to rise in value as well as selling a borrowed asset for a price and buying it after its value has diminished comparatively.
Arbitrage this involves benefiting from the anomalies in the asset prices, e.g. if the shares of a company are sold at different prices at different locations, the manager opts for the more profitable one.
Investing in a distressed company this is done to take advantage of a predicted profitable takeover of the company in question.
Derivatives this involves relying on the prediction of the rise in the value of commodities or shares.
Leverage this involves borrowing money to add to the derivatives.
Who can invest?
Well, hedge funds pool in large sums of money and involve major investments. This is why not everyone is eligible to become an investor. Only if you are worth a certain amount, earn a huge sum on an annual basis, or own a very profitable business, you become an accredited investor.
Who manages it?
A hedge fund is not under the regulations of the Securities and Exchange Commission. The manager of the fund, therefore, need not be a registered investment advisor. He/she manages the pooled in money and makes use of the different strategies to attain financial benefits for the investors. The managers get an annual management fee and percentage of the profits for their services.
Why it seems too risky?
Like all investment options, there are pros and cons to New York Hedge fund as well. However, if you assess properly, you would be able to understand that it is not as risky or dangerous as it appears in the first place. These funds involve dealing with a huge sum of money (in millions) and therefore seem to be more risky than they actually are.
