Resources for Hedge Fund Firms and Funds

Business Guide to Hedgefund Firms and Funds

Hedgefund firms and funds are quite popular among investors. Hedge firms manage hedgefunds, which are investments that only a select group of investors have access to. To gain access, these investors are required to pay fees to a fund manager. Once these fees are paid, the fund manager makes investments on behalf of his clients. These investments can be quite lucrative for investors, but they are also very risky. Most investors who are willing to take these risks understand that a lot of money is at stake. However, because of the financial rewards that these investments can bring, many investors with money to spare are willing to take their chances.

Benefits

Most hedgefunds work on the “2 and 20” compensation formula, according to DealBook.NYTimes.com. This guarantees that a hedgefund manager will receive 2 percent of assets and 20 percent of any profits made each year. As a hedgefund firm, this is a beneficial stance. Even if your investments lose money, you will at least earn 2 percent of the company’s worth during the investment.

Hedgefund firms and funds can be beneficial for your company. Investing is a popular way to maintain financial growth and security. While hedgefunds can be risky investments, the potential return is large and highly profitable. They are not regulated by the government and are considered to be secretive and private. If you are a hedgefund company, you do not have to disclose your profits or returns, because you will not be regulated by the government.

Hedgefund Regulation

Because hedgefunds are not regulated by the government, they are considered to be a private investment strategy. Trading strategies for mutual funds, for example, have to be disclosed to the public and government. Hedgefund firms do not need to disclose their strategies, profits, or returns.

Buy Direct

Hedgefunds can give you a quick and powerful return on your investment. The more risks you are willing to take on, the more likely it is that you will make more money. One way to do this is to invest in a distressed company. If you and others who have hedgefunds take control of the company by buying its debts, you will have more control over the company. If the company succeeds in coming out of debt, your company will benefit. You also benefit if they company goes bankrupt, because debt has precedence over equity, and you may receive a financial disbursement. Your losses may also be reduced if you work with a number of other hedgefund firms to buy the distressed business’s debt.

Buy Mutual Funds Directly

If you buy mutual funds directly, you can purchase larger quantities of distressed debt without having to pay exchange-generated fees. This reduction in fees can save you large amounts of money, depending on the amount you have invested.

Pitfalls

Hedgefund firms and funds can be beneficial for a company; however, they are not without their downfalls. Investing in the debt of a company can be a dangerous move for your business.

Varied Strategies

Hedgefund firms do not have to disclose their strategies to the government or public. This could make investing difficult for you if you choose to switch firms. There are approximately 14 different strategies used by hedgefund firms today, and not all of them are hedging against the downturn of the market. Because they can vary so much, it is important to research and know the company you are planning to use.

Specialization

Many hedgefund firms are specialized. This means that you will want to work with a firm that has the area you’re interested in as a priority. If not, the company may or may not have the ability to manage your funds as well as it should.

Speculative Investment

Hedgefund firms have managers that manage each client’s money. Some strategies involve speculation about the debt of a company and the ability of the company to pull out of that debt. If the speculation is wrong, you can lose a large amount of money. For this reason, hedgefunds can be considered a high-risk investment.

Returns and Losses

The point of a hedgefund is to aggressively invest and gain a quick and massive return. While the return may have the potential of being high, a large amount of loss can also occur within a relatively short amount of time. Distressed debt is one major way to gain a quick and high return. However, if the distressed company you invest in files for bankruptcy and closes, you may or may not receive compensation. This could lead to massive losses for you and your company’s funds.

Pricing

The cost of investing in hedgefund firms and funds varies tremendously. However, it usually costs more to invest in this type of product than in stocks, mutual funds, and other securities. According to Magnum Funds, the hedgefund industry has grown by 20 percent each year, and more than 8,350 hedgefunds are currently active. The great number of hedgefunds available for investment provides a range of minimum investment prices.

Most hedgefunds have a minimum required investment greater than $10,000. Some hedgefunds also require that investors have a minimum net worth. A few hedgefunds offer fractional shares with lower minimum investments, but investors should be aware that hedgefunds have different risks than other securities and may not be good choices for all investors.

Conclusion

Before you decide to invest in hedgefunds, it is essential that you learn as much as possible about this type of investment. If you decide to pay someone to make these investments for you, be very selective about whom you choose. One of the best ways to start investing in hedgefunds is to find a hedge firm with a successful track record to assist you. Each hedge firm you contact should be able to clearly articulate its investment strategy, which will help you make an informed decision. Because hedgefunds are not sold to the public, there is a definite chance for you to secure a high return.