Skip to main content

What is a hedge fund?


A hedge fund is an investment fund that collects pools capital from accredited and institutional investors and invest in securities or other type of investments with a goal to generate high returns. What makes them different from mutual funds besides type of investors and diversity of investments is that they are less regulated and have more freedom when utilizing investing strategies that carry greater risk and potential for loss. Reason why it is available to wealthy investors is their knowledge and understanding of risks involved and ability to afford higher fees and potential loses. This means they can use short selling and other speculative activities unlike mutual funds. To be considered accredited investor individual must have a net worth of $1,000,000 at least or annual income of at least $200,000. Term accredited investor is defined in Rule 501 of Regulation D of Securities and Exchange Commission.

Even though hedge funds are not subject to some regulation that protect investors, because they pool money from sophisticated investors, but they subject to prohibition against fraud. Just like mutual funds not all hedge fund use the same investing strategies so investors can pick and choose ones that correspond with their investment style. Reading the offering memorandum is the best way to inform yourself about base and investment strategies of fund, risks, fees and expenses and all other important categories. Like with any investment, the higher returns, the higher is the risk but hedge funds use some speculative investing practice like leverage, using borrowed money to make investment making it extremely risky.

Another important issue is understanding fees involved as they impact your return on investment. Hedge funds have two and twenty fee structure which means that you pay asset management fee of 2% and performance fee of 20% from the fund's profit. This caused some controversy over 2% fee because fund manager could get substantial amount of money if if he didn't make profit for fund. This brings us to the questions about fund manger. It's a smart move to research mangers' background, qualification and if there where any disciplinary issues.

Hedge funds are connected with high returns on investment but investors should be aware of illiquidity. This is connected with two topics. The first is, hedge funds can hold assets that are hard to sell and hard to evaluate. Investor should be aware of fund's evaluation process and assessment of value from some independent source because depending on how much fund values its assets cost of fees will be affected. Also, investors won't be able to redeem their shares because hedge funds put them at usually one year lock-up period. Withdrawals may happen quarterly and bi-annually but some hedge funds have authority to suspend redemption under certain circumstances. Hedge funds can have extraordinary gains but also can lead to heavy losses. 
Labels:
Location: West Palm Beach, FL, USA

Comments

Post a Comment

Popular posts from this blog

OTC stocks more difficult to trade and deposit

  Mina Mar Group helps micro-cap companies structure their growth. Micro-capitalized companies are those with less than $50,000,000 in equity, sometimes under $1,000,000. Restructuring involves raising money (both debt and stock), and planning how they will eventually harvest that wealth. If you’re a founder or investor, the secret to harvesting your equity is to possess assets with a developed market for their sale; up until recently, that market was the public market. Now, Over-The-Counter Securities (“OTC Securities”) don’t serve that purpose since, unless you’re a tech unicorn doing an IPO, there are essentially no ways to sell the shares you’ve invested in. OTC securities – how they were deposited five years ago. Brokerages all around the country have tightened compliance over the past five years to the point where no one may deposit share certificates into their brokerage accounts, even if they can prove that they paid for them. Consider the following demand from a secondary brok
Post a Comment
Read more

Foreign Companies

Lately, we are getting many inquiries about dual listing or to list foreign companies either through IPO or RTO on OTCmarket. What are the benefits for foreign companies to be listed on OTC markets and how they can do that?  Is it an easy procedure, and what are the conditions? What is the main reason for companies that are listed on qualified foreign exchanges to trade on OTC markets? We are here to cater to your questions by providing you with the right answers. The first thing we need to start with is that this market is a global market. Only that fact gives you countless opportunities. To be listed on Wall Street which represents a vital center of global finance, for early-stage growth companies, and having access to US investors can bring a significant competitive advantage. It is appropriate for small businesses due to its regulatory structure, which gives better transparency and accessibility to a bigger pool of less risk-averse and more active investors. This is important for s
Post a Comment
Read more

S1 Registration

A Form S1 represents the opening registration that a US firm must submit with the SEC prior to an Initial Public Offering. The Securities Act requires a registration statement, otherwise known as Securities and Exchange Commission Form S1, previous to security can be issued on a public exchange such as the NASDAQ, NYSE, or other exchanges. Foreign corporations can register with the SEC, but they must do so using the SEC Form F1. Corporations must fill out Form S1 to outline their intended use of capital proceeds, a description of their current business strategy and competition, and a brief prospectus for the new security, including offering pricing mechanism and any other dilution to other listed stocks.  The SEC also mandates that any material business conducted between the corporations and its directors and external counsel be disclosed. Investors can access S1 filings online in order to do due diligence on new offers before they go public.  As a result, businesses can use the SEC’s
Post a Comment
Read more