How to buy hedge funds
Hedge funds don't beat around the bush. These specialized
portfolios are the darlings of the investment world, attracting top
managers, institutions, pensions and wealthy individuals to their
fold.
Hedge funds share features that present both opportunity and risk. Portfolio managers typically take short positions in securities — bets on falling prices — as well as long positions that benefit from rising valuations. They also use borrowed cash — leverage — to magnify returns.
The idea is to hedge against market declines (hence the name) and produce consistently positive returns, irrespective of the direction of the overall market.
The main allure of hedge funds is that, when done well, they contribute return that isn't closely tied to global stock and bond markets, providing diversity to an investor's portfolio.
But there are plenty of caveats:
• Membership has its price: Hedge fund investors must be wealthy, generally with $1 million or more in net worth. There are hedge-like mutual funds that give ordinary investors a shot. But the more accessible funds may offer more limited opportunity.
• Fees and taxes: Fees are hefty, usually 2% of assets plus 20% of profits. The trading patterns of hedge funds also expose you to larger tax bills.
• Leverage and short selling: These are great tools for funds but they also present greater potential risk.
• Lockups and lack of liquidity: Hedge fund investors often must commit their money for three months or more and managers have the right to limit withdrawls.
More resources
How to buy ... hedge funds ... the complete story
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Hedge funds don't beat around the bush. These specialized
portfolios are the darlings of the investment world, attracting top
managers, institutions, pensions and wealthy individuals to their
fold.Hedge funds share features that present both opportunity and risk. Portfolio managers typically take short positions in securities — bets on falling prices — as well as long positions that benefit from rising valuations. They also use borrowed cash — leverage — to magnify returns.
The idea is to hedge against market declines (hence the name) and produce consistently positive returns, irrespective of the direction of the overall market.
The main allure of hedge funds is that, when done well, they contribute return that isn't closely tied to global stock and bond markets, providing diversity to an investor's portfolio.
But there are plenty of caveats:
• Membership has its price: Hedge fund investors must be wealthy, generally with $1 million or more in net worth. There are hedge-like mutual funds that give ordinary investors a shot. But the more accessible funds may offer more limited opportunity.
• Fees and taxes: Fees are hefty, usually 2% of assets plus 20% of profits. The trading patterns of hedge funds also expose you to larger tax bills.
• Leverage and short selling: These are great tools for funds but they also present greater potential risk.
• Lockups and lack of liquidity: Hedge fund investors often must commit their money for three months or more and managers have the right to limit withdrawls.
More resources
How to buy ... hedge funds ... the complete story
