Taking the Mystery Out of Hedge Funds
by sharon rockey
Welcome to the first in a series of newsletters about Hedge Funds, an alternative investment strategy for qualified investors. Over the next few weeks we'll be your guide as we walk you through what Hedge Funds are and what they are not. We'll explain how they can outperform traditional investment vehicles, and help you decide if Hedge Funds are right for you.
Whether you are new to Hedge Funds, if you know a little but not enough to seriously consider investing, or if you are just curious about what makes them tick, stick around! We're here to take the mystery out of Hedge Funds because we believe it's the informed investor that makes the wisest investment decisions.
What are they? Hedge funds have a reputation for being secretive, private, mysterious, loosely regulated, highly sophisticated, and extremely complicated.
That may be so, but for all their seeming complexities, Hedge Funds are one of the fastest growing investment vehicles in the marketplace. They continue to attract billions of dollars from new investors every year with assets reaching $563 billion in 2001.
That Hedge Funds are growing in popularity is crystal clear—it's when you try to describe them that things get a bit fuzzy. Hedge Funds are loosely defined as small private investment pools which invest in a virtually unlimited variety of securities. Since they operate under less stringent SEC regulations compared to those of mutual funds, Hedge Fund managers have the freedom to help grow and preserve investor wealth by using a number of sophisticated investment techniques not available to tightly regulated funds.
Strategies that work in rising or falling markets. Hedge Fund managers create funds using strategies based on their own talents and specialized expertise. Some Hedge Funds are designed to make profits as markets rise, some as markets fall. We will explain these various strategies and techniques in greater detail in future editions of this newsletter, but briefly, some of the strategies employed to capitalize on market opportunities may include leverage, short-selling, options, futures, or arbitrage, among others.
We believe Hedge Funds can be a wise alternative to more traditional
investments—especially in light of the volatility on Wall Street today.
There are nearly 6,000 Hedge Funds worldwide, up from 880 a decade ago. Assets in 2001 were $563 billion versus $408 billion of the previous year. The pace in 2002 is said to be similar, according to hedge fund advisory firm, Hennessee Group.
New York financial services consultant Freeman & Company, reports that demand is expected to grow over 25% a year for the next five years, pushing total fund assets over a whopping $1 trillion mark by 2006.
So now you know— they're here, they're big and getting bigger. But are they right for you? Let's find out.
What are the questions?
We've got the answers that will give you a better understanding of Hedge Funds, but before we give you those, let us give you some questions.
- How long have they been around?
- What is their track record?
- Who puts them together?
- What opportunities do they offer?
- What are the advantages? The risks?
- What strategies do they use to outperform the market?
- How do I know if they are right for me?
- How do they differ from mutual funds and other investment vehicles?
- How does one hedge fund differ from another?
- How do I chose the right one?
- How can I invest?
These are just some of the questions we will be answering over the next few weeks. We hope you'll stay with us!
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