Hedge Funds
Hedge funds have recently been attracting a good deal of interest and a certain amount of cynicism from the market. Below we outline the basic issues to consider in relation to a hedge fund:
What are hedge funds?
There is no uniform definition in use and at first glance they can often differ wildly from one to another. On closer analysis, however, they each have unifying features:
- "Risk free"
The intention of a hedge fund is to provide a positive return whether a given market rises or falls. - Diversity
Hedge funds try to avoid the constraints of a single investment strategy. - Leverage
Hedge funds are able to freely leverage their holdings to a much higher degree than traditional funds. - Absolute return
Hedge funds focus on absolute returns. - Unregulated
The hedge fund itself is an unregulated vehicle.
And the down side...?
Hedge funds certainly charge a premium for their returns. Compared to a traditional fund structure this is an expensive option. Some funds counter this by permitting all charges (other than perhaps an administration charge) only when the return is positive.
Areas for careful consideration before investing include:
- Reliance on owner managers
The investor is reliant on individual managers to a far greater extent than within a traditional fund structure. - Access to information/price transparency
The investment strategy of a hedge fund is considered to be highly confidential and investors only have access, on the whole, to performance figures rather than detailed breakdowns of the portfolio. - There's only so much out there...
Certain major investors have raised concerns about the impact of the hedge fund boon on other (as yet unidentified) areas of investment. - How do hedge funds interrelate
There are some concerns about the lack of information on how funds generally are interrelated and their performance interdependent.
If you would like to discuss hedge fund issues further please contact Nigel Stone or Victoria Symons.
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