What are hedge funds?
Hedge funds are entities that aggregate money from investors and make investments in securities or other types of investments with the intention of garnering positive returns. Hedge funds are generally allowed more flexibility in pursuing investments and strategies that would otherwise increase the risks of investment losses compared to mutual funds, mainly for reasons of lesser regulation. Only a few players, wealthy investors who can absorb the higher fees and risks involved in hedge fund investing, as well as institutional investors, including pension funds, may have access to hedge funds.
What should I know when contemplating investment in a hedge fund?
Typically you must be an accredited investor to invest in hedge funds, meeting at least one of the following minimum standards: income, net worth, or assets.
Read a fund’s prospectus and other relevant materials. Understand the degree of risk from the investment strategies used by the fund, whether such risks are appropriate for your personal investing goals, time horizon, or your individual risk tolerance. As with any investment, potential higher returns come with higher risks.
Learn how the value of assets in funds is determined. Some hedge fund investments are illiquid; trying to determine its value will be difficult. So one needs to learn about valuation of the holdings and the reliance placed on independent sources to value the portfolio.
Fee structures. Fees impact your rate of return. Hedge funds generally have an asset management fee between 1 percent and 2 percent of the total assets managed,they also have a “performance fee, which is essentially 20 percent of the hedge fund’s profit. This performance fee can work to incent the hedge fund manager to gamble even harder in hopes of winning larger returns.
Finally, know the limits on your redemption right. Hedge funds tend to limit redemptions or cash ins to four times a year and have many imposing a “lock-up” period of one year or more where you cannot cash in your shares.
Investigate hedge fund managers. Cobham asks whether the hedge fund managers you are considering have the relevant investment management experience and training to handle your investments, and check if they have a disciplinary history in the securities industry.
You may do this by reading the adviser’s Form ADV, which is the investment adviser’s registration form. You can find and access a firm’s Form ADV through the SEC’s Investment Adviser Public Disclosure(IAPD) website.
If you can’t locate the investment adviser firm in the SEC’s IAPD database, call your state securities regulator or search FINRA’s BrokerCheck database.
Ask questions. You are giving someone else control over your money. You should know where your money will be going, what kind of management team will be operating it, how the investments will be made, and how that money can get back to you. You may also like to read FINRA’s investor alert, which outlines some of the hazards of investing in funds of hedge funds.
High-for-longer rates.
Firstly, the market has gotten used to a higher-for-longer rate outlook. As central banks in the developed world are either at or close to the peak of their tightening cycles, rate cuts would be unlikely until later in 2024. While “holding tight” to lean into inflationary pressures is not a friendly backdrop for broad asset class returns, the scope for hedge funds to structurally benefit has increased. Hedge fund returns increase when interest rates are higher.
Strategies to address the current market regime
There are numerous advantages of hedge funds for investors at all times, some of which stand out particularly now. These include.
- Alternative, uncorrelated return streams to add robustness to a bigger portfolio
- Beating the benchmarks in negative stock and bond markets-to hedge against again downside risks
- Greater returns for the same risk taken
Why Invest in Hedge Funds?
One of the primary benefits of hedge fund investments is that they are an excellent means of achieving diversification at the overall portfolio level. A second attractive characteristic is return potential, which research has shown adds to the portfolio and reduces total portfolio risk and hence may enhance the risk-adjusted return of traditional portfolios.
We know whose money we work with-someone’s hard-earned money, saved for years; or, if you represent a not-for-profit organization, the money will be there in the long term to complete important missions. We understand the stakes. That’s why we want to bring real, enduring value. And that’s why we can be committed to our purpose.
improving financial security for people.
Why Russell Investments for your hedge fund investments?
Alternative Solutions Group Russell Investments is committed to providing alternative investment solutions to clients, with broad capabilities in the hedge fund space. Liquidity matching, governance, and risk management are some of the key drivers for our clients. That’s why we have developed a modular approach to fund construction.
Benefits of Working with Russell Investments for Hedge Fund Exposure
- Robust process, governance, and oversight
- World-class investment professionals
- In-depth research on global management
- We offer diversified access to premier hedge fund managers.
- Disciplined portfolio construction
- Focused risk management
- Rigorous operational due diligence
- We are constantly monitoring the managers and market opportunities.
Access to global hedge fund opportunities
We intend to concentrate some of the best hedge funds worldwide in multi-manager portfolios. Our investment research capabilities include the following strategies:
- Relative Value
- Event Driven
- Equity Hedge
- Tactical Trading
Remember all investments carry an element of risk involved, which can be the loss of a fraction or even all principal invested. They do not grow evenly at a rate of return and sometimes lose money. Much like when building any portfolio, trying to reduce risk and increase return sometimes inadvertently lowers restoration.