Retail investors wanting to invest in a hedge fund may be able to take a less direct route by buying into a fund that then goes on to invest in hedge funds (sometimes known as a 'fund of funds'). This is part of the reason the hedge fund market is dominated by big companies why hedge funds face little official regulation, especially compared to mutual funds, pension funds and other investment vehicles. Hedge funds are open only to accredited or qualified investors who have a net worth exceeding $1m (excluding their primary residence) or an annual income of over $200,000 maintained for the previous two years. In this way, hedge funds may be thought of as closer to trading than typical investing. ![]() It's difficult to generalise on the potential returns of hedge funds, since whether or not they make money depends more heavily on the decisions of each fund manager rather than on current market conditions. The aim here is to better control the volatility, risk and returns of the umbrella fund by strategically mixing the underlying strategies and funds. ![]() In addition, it is possible for a hedge fund to take a 'fund of funds' strategic approach by combining other hedge funds or pooled investment vehicles. Activism - manager manipulates fund volatility by changing the board of directors, appointing new management or pushing for the sale of a company.Relative-value – takes advantage of price or spread inefficiencies.Equity – invests in stocks globally or nationally while hedging against downturns in equity markets by shorting overvalued stocks or stock indices.global interest rates, economic policies etc) Macro – invests in stocks, bonds and currencies in the hope of profiting from changes in macroeconomic variables (e.g.(The investment strategy is normally outlined in a prospectus for investors to read before they invest.) While this degree of latitude can prove highly risky, it also affords hedge funds a huge amount of flexibility. Since hedge funds are private investment vehicles, they can do more or less whatever they like so long as they are upfront about their strategy to investors. The only thing limiting the scope of any hedge fund is its mandate. Land, real estate, currencies, derivatives and other alternative assets – in short, anything. While every hedge fund will have its own specified investment strategy, the idea of 'hedge fund' derives from the agency of the fund manager (or 'general partner') to implement certain trading tactics, such as shorting stocks (if they anticipate a drop in the market) or 'hedging' themselves by going long (if they foresee a market rise).Īs you can see, much depends on the ability of the fund manager to anticipate shifts in the market and react accordingly. Hedge funds are generally seen as aggressive and risky, particularly when compared to mutual funds. If you are interested in learning more about how to protect yourself, visit the FCA’s website here. These new shares could have additional rights that your shares don’t have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.Most start-up businesses issue multiple rounds of shares. This could mean that the value of your investment reduces, depending on how much the business grows. The percentage of the business that you own will decrease if the business issues more shares.The value of your investment can be reduced A good rule of thumb is not to invest more than 10% of your money in high-risk investments.ĥ.Spreading your money across different investments makes you less dependent on any one to do well. Putting all your money into a single business or type of investment for example, is risky.If you are investing in a start-up business, you should not expect to get your money back through dividends.The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange.You are unlikely to be able to sell your investment early. Even if the business you invest in is successful, it may take several years to get your money back.If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. ![]() Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance.Try the FSCS investment protection checker here to find out more. Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance.You are unlikely to be protected if something goes wrong If the business you invest in fails, you are likely to lose 100% of the money you invested.Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.ġ.
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