“The Stuff You Wont Hear Anywhere Else”
Hedge Funds – The Investment Choice of the Rich and Famous
We hear all the time about billionaire Hedge Fund Managers buying lavish houses and cars. How do they do it ? And what are Hedge Funds?
Well Hedge Funds are investment funds that pool capital from a limited number of accredited investors or institutional investors such as pension funds. Accredited investors are individuals who can show 200,000 dollars in income over the last 3 years and have at least a million dollars of investible assets, another words whales! These are private funds, they do not solicit for business and they don’t advertise in the Wall Street Journal.
Because Hedge Funds are private funds not open to the investing general public they are not subject to regulations mutual funds open to the general public are, they generally avoid direct regulatory oversight and licensing requirements, they can basically invest in anything the portfolio manager wants to by any method they seem fit, hence the name.They engage in a diverse range of markets and strategies and use a wide variety of different investment techniques and instruments to achieve their goals. ..Wow..sounds complicated and expensive!
Speaking of expensive, typically the management fees for the funds are about 2% of the assets under management on an annual basis, and wait they usually take the first 20% of the profits in any given year, not too bad, well not too bad for the portfolio managers anyway ! One would not mind if the performance was stellar but since 2008 the performances in the most part have not been equal of above the S&P 500 Stock Index. While some have done excellent the majority have not exceeded the index performance. Remember no one can guarantee performance, and past performance is no guarantee of future results. The Benchmark for investing in the markets is usually the S&P 500 Stock index which is the largest companies in the world by capitalization, or how much they are worth, equity funds compare their volatility to by measure of their beta. Ah a new word.
Beta- is the measure of volatility or systemic risk of a security or a portfolio in comparison to the market as a whole. It calculates the expected return of an asset, which is based in its beta. The S&P 500 index has a beta of 1, if the beta of a equity fund or a stock is less then 1 it is less volatile than the S&P 500 index, if the beta is greater than 1 it is more volatile then the index and more risky, but the expected return is greater than the index because of the higher risk……get it ?
With all the techniques available and less stringent regulatory oversight hedge funds try to outperform the markets, and try to hit home runs all the time, remember, you pay more for a home run hitter then one who hits singles, which is better? Its up to you to decide are you the Tortoise or the Hare?
Hedge Funds represent about 1.1% of total funds and assets held by financial institutions as of June 2013 it was estimated the size of the global Hedge Fund industry was U.S. 2.4 trillion dollars.
Remember investing in any instruments market related carry risk. The degree of risk you decide on is directly related to your investment choices. Do research, do due diligence, decide how much risk you are willing to take on , the time horizon you want to keep the investment in, and by all means talk to one of our Financial Planner, we are fiduciaries, and ONLY look out for your best interests…Period! And our consultations are always free, you have nothing to lose.