A hedge fund is an investment scheme where a professional manager collects funds from so-called accredited investors. They include commercial banks, insurance companies, wealthy individuals with high net worth, and organizations managing pension funds. He uses all of their money to buy a wide variety of financial instruments and liquid assets. These could generally include derivatives, bonds, and convertible securities, certain types of real estate, equities, and currencies. In doing so, the manager generally uses complex portfolio-construction strategies and risk-management tactics. His objective is to mitigate their inherent risks, preserve their capital, and maximize their returns.
Scott Tominaga– How to invest in hedge fund schemes?
Scott Tominaga is an experienced specialist with a degree in business finance from Arizona State University. He has over 25 years of experience in marketing alternative investment schemes and supervising investor relations. His area of expertise is in accounting, financial compliance, administrative functions, and back-office operations. He began his illustrious career as a regulator with the Financial Industry Regulatory Authority (FINRA). This is a non-government agency in the United States which enforces the federal statutory laws governing brokerage firms.
He says hedge funds are available investment option for a specific class of small investors. They should meet the following stringent requirements to invest their money in these schemes:
- Own personal assets having a net worth which exceeds one million dollars excluding their primary residence,
- Earn an annual income exceeding $ 200,000 for at two consecutive financial years if they are not married, or
- Earn a yearly income exceeding $ 300,00 for the last two consecutive financial years.
Investors meeting the above criteria should then browse the Internet for suitable hedge fund schemes. In doing so, they should consult and take the help of a trustworthy financial advisor.On finding a hedge fund scheme of their choice, they verify the fund manager’s credentials. They can do so by contacting the scheme’s officials who ask them to submit a Form ADV.These executives will also inform minimum investment requirements, time, and inherent risk factors.
Common hedge fund investment strategies
Investors showing interest in hedge fund schemes should be aware of common strategies fund managers adopt. Only then should they decide whether these investments are worth their time and involvement. Generally, the managers implement the following strategies to maximize clients’ returns:
- Global macro where they make bets on important international macroeconomic trends like change in currencies or interest rates,
- Event-driven where they invest in prominent corporate transactions like acquisitions, consolidations or liquidations,
- Relative value arbitrage where they exploit the price discrepancies of different securities likely to converge over time, or
- The capital structure where they exploit the over or under-valuation in securities prices in a company’s capital structure.
Scott Tominaga concludes by saying a hedge funds scheme is a favorable investment option for most small investors. It allows them to diversify their portfolio, mitigate their risks, maximize their returns. They are even immune from the volatility affecting the financial markets. However, they need to own personal assets exceeding $ 1 million or earn a yearly income of over $ 200,000.Only then are the investment schemes suitable for them to establish their financial future.