Who Needs Hedge Funds

With all the negative publicity concerning Hedge Funds lately, I wonder why anyone would even want a part of these investments. A decent Investment Advisor will often offer investment products that are totally transparent (unlike Hedge Funds), no incentive fees, and great return potential.

Hedge funds have a significant failure rate. Some strategies, such as had an attrition rate as high as 15% per year between 1994 and 2003, according to a study. It cannot be denied that failure is an understandable part of the process speculative financial investments, but when large, popular funds close, there is a lesson for investors somewhere in the debacle. When you see Hedge Fund returns in the Wall Street Journal, or other financial publications, they omit the funds that have gone out of business. This, of course, inflates the actual investment return of these funds.

What is A Hedge Fund?

A Hedge Fund is an often aggressive portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns either in an absolute sense or over a specified market benchmark.

Hedge funds are typically open only to a limited range of professional or wealthy investors. This provides them with an exemption in many jurisdictions from regulations governing short selling, derivative contracts, and use of leverage. A hedge fund will typically align itself to a particular investment strategy, investment types and leverage levels via statements in its offering documentation, thereby giving investors some indication of the nature of the fund.