Hedge funds are an alternative investment method. It is a form of investment in which funds are raised and invested using different investment strategies to make a profit in a financial partnership between a fund manager and investors.
The fund manager is called the general partner and the investors are known as the limited partners. The role of limited partners is to invest in funds, and the common partner manages them. Investors are provided with a hedging prospectus that provides information on key aspects of the fund, such as the fund’s investment strategy, type of investment and leverage limit.
As the name suggests, hedge funds operate to ‘hedge’ or avoid risks. Thus, we see that the purpose of hedge funds is to minimize risk and increase profits. These are to make a profit, regardless of market fluctuations. They minimize risk by offering investors long or short shares. Shortening means making money when stocks fall.
An investment manager manages funds through a company that is different from a hedge fund and an asset portfolio. The investment manager uses the support of the following service providers:
They help clean up the business, allow for leverage and short-term financing.
Provide operational, accounting and valuation services.
They are mainly engaged in the distribution of securities. The distributor can be an underwriter, dealer or broker.
Adopted investment strategies can be classified as follows:
• Production / quality: These are strategies chosen by the general partner or the fund manager.
• Systematic / Quantitative: These are the strategies offered by a computerized system.
Features of hedge funds:
• Only available to accredited investors
Investors must have a certain net worth before investing in hedge funds.
• Variety of Investment Options
Land, real estate, stocks, derivatives, currencies, etc. As can be invested in various areas.
• Use leverage
Borrowed money is often used to increase income.
They charge a management fee and a performance fee.
The main benefit of investing in hedge funds is that the risk is less than other types of investments. It can be said that they are not related to market indices. However, it remains true that they are prone to some risks. So it is a good idea to be aware of all the potential risks before investing. It is also important to choose an experienced fund manager in this area.