Hedge Funds What They Are and What They are not

Many investors have the wrong idea about hedge funds. Contrary to popular belief, not all hedge funds are highly speculative investments reserved for ultra aggressive, ultra rich investors. It's time we set the record straight. Here's a brief explanation describing what hedge funds are, how they work and how they can benefit your portfolio.

Background on Hedge Funds

Hedge funds date back to 1949, when Fortune magazine editor Alfred Jones created a fund that used long and short equity positions in a single investment. Its purpose was to deliver solid perform- ance under any market condition. And it worked. Today, hedge funds are the fastest growing asset class in the world, comprising a $500 billion industry.

Benefits

Hedge funds offer three main benefits. First they deliver superior performance. Since managers can use any financial tool to generate gains, hedge funds have a better chance of achieving this goal compared to mutual funds or stocks.

Second, hedge funds provide diversification. Investing in an equity hedge fund is a great way to decrease the correlation of your portfolio with market indices.

Lastly, like Managed Money, investing in hedge funds offers access to some of the best money managers in the world. Their incentive-based fee structure truly gives managers by reason to outperform. There are also risks associated with hedge funds. They will per- form well at different times than your traditional investments. Also, hedge funds employ a degree of leveraging techniques which can exaggerate the performance, good or bad.

While hedge funds can be a powerful investment tool, their complexity demands professional advice. So, speak to an advisor who is familiar with these sophisticated investments. This way, selecting and investing in hedge funds will be a breeze. Give me a call to discuss the matter further.