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Hedge Fund Investing - Page 2

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History of the industry

The earliest hedge funds were launched in the '40's and were designed for sophisticated high net worth individual and institutional investors looking to hedge their investments with portfolio managers using both long and short strategies. That is, investors were looking to generate gains whether the markets were going up or going down. It was a cottage industry back then.

Today the industry still appeals to high net worth individuals while being increasing used by large institutional investors including college endowments (Yale, Harvard, MIT, Notre Dame and 100s more), private and public pensions (teachers unions for example), trusts and non-profits all looking to diversify their investments in this alternative asset class which may provide above average returns while providing protection against market volatility and risk. Hedge funds typically provide greater liquidity than do other alternative asset forms of investing including venture capital, private equity and real estate.

Learning about hedge funds

Large investors learn about hedge fund investing opportunities by attending major international conferences, subscribing to hedge fund research services, getting guidance from their financial advisors and being called on by hedge fund marketing representatives.

Most individual and smaller institutional investors lack the same research capabilities as do large investors and have to rely on web sites tracking the industry (www.barclays.com and www.eureka.com are two such sites), attending industry conferences in their markets and advice from their investment advisors who may or may not be as knowledgeable as advisors to large investors.

Advantages to hedge fund investing

The key reasons I invest in carefully selected hedge funds is because:

· some of the world's best investment managers head their own hedge funds and have their own capital invested in their funds. I like investing side by side along with exceptional investment professionals

· generally the best hedge funds outperform the best mutual funds regardless of the market cycle.

· every investor in a hedge fund has her or his own tax basis which is not the case with mutual funds for example.

· I lack the skill and time necessary to invest successfully in this rapidly changing global economy in individual securities. Most individual and smaller institutional investors are in a similar boat. Investing in a hedge fund gives me the exposure with a single investment in a portfolio of secuties being managed by the hedge fund management team.

Concerns when investing in hedge funds

Generally the most important reasons investors shy away from hedge fund investing is because:

· they don't understand the industry and how to do it successfully

· their advisors also lack expertise and access to the best of the best hedge funds

· the "lock-up" periods for each investment can be an obstacle for investors needing quicker access to their invested capital

· the press on the industry is often negative. The solid, top performing hedge funds never seek publicity and don't need it. This industry is no different than any other. They all have their winners, losers and scoundrels.

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Tuesday, 26 September 2023
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