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Hedge Fund Investing | Learn More – Investment U

Do you have at least $100,000 to invest, or maybe 10 to 20 times that amount? Perhaps you are ready to enter the world of hedge fund investing. Such investing requires substantial capital. The potent…….

Do you have at least $100,000 to invest, or maybe 10 to 20 times that amount? Perhaps you are ready to enter the world of hedge fund investing. Such investing requires substantial capital. The potential returns of a hedge fund are very high. This is why so many rich people invest in them. Keep in mind that those possible huge rewards come with equally high risks.

What is a Hedge Fund?

A hedge fund pools money from investors. It then invests in securities or other types of investments with the goal of getting positive returns. That description sounds somewhat like mutual funds. But hedge funds may have more leeway to pursue riskier investment strategies. Additionally, they are privately owned, not publicly traded vehicles.

The Federal Reserve notes that hedge fund investing holds a wide variety of asset types, which may include:

  • Equities
  • Fixed-income
  • Derivatives
  • Currencies
  • Real estate
  • Art

Many hedge fund assets are illiquid, difficult to value or both.

If interested in hedge fund investing, it is also crucial to understand what a hedge fund is not. The IRS points out that a hedge fund is not a private equity fund, ETF, REIT, mutual fund, bond fund or Regulated Investment Company. These are the sorts of entities with which most investors are familiar.

The world’s largest asset manager, BlackRock, specializes in hedge funds. Its website explains that “optimal hedge fund portfolios seek to emphasize idiosyncratic (e.g., security-specific) sources of return while minimizing broad market risks.” In plain speak, that means an investment risk specific to a particular asset, such as an individual company. It may also refer to a specific asset class affected by an unexpected event. For example, the pandemic devastated the travel and airlines industries in unforeseen ways.

Who Can Invest?

Hedge fund investing is not available to everyone. Eligibility is limiting to those meeting specific financial criteria. Only accredited investors may invest in hedge funds. Such investors are supposedly more financially sophisticated. So they can understand the risks associated with hedge fund investing.

Accredited investors must have a net worth exceeding $1 million. This net worth does not include the value of their primary residence. For the prior two years, their income must have exceeded $200,000. If married, their income must have exceeded $300,000. Additionally, they must expect a similar income level for the current year.

Institutional investors are also accredited. These investment professionals must hold a Series 7 general securities representative license in good standing. They can also hold a Series 65 investment adviser representative license or a Series 82 private securities offerings representative license. Pension funds and insurance companies are …….

Source: https://investmentu.com/hedge-fund-investing/

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