Five Reasons Why Hedge Funds Require Savvy Investors
They have few investor protections. Depending on the amount of assets in the fund, hedge funds may not have to register with the U.S. Securities and Exchange Commission (SEC), which protects individual and institutional investors in the United States, although many do anyway. Nor do hedge fund investors receive the same federal and state protections that typically apply to mutual fund investors.
They require large up-front investments. Minimum investments are rarely less than $25,000; many funds want investors to commit at least $1 million.
They lock up investments for long periods of time. Most hedge funds place limits on how often investors can get their money out because they want to take advantage of as many investment opportunities as possible, including illiquid securities that may be hard to value.
They may take on incredible risk. Although traditional hedge funds use short selling, futures, and portfolio diversification to reduce risk, some hedge funds use high levels of leverage, exotic futures strategies, and aggressive investment techniques to generate high rates of return. Remember: The term “hedge fund” applies to any lightly regulated investment partnership, regardless of the amount of risk in the partnership.
They invest without tax considerations. Investors who have to pay taxes pay taxes each year on their hedge funds’ gains, whether or not they received any of the gains in cash. And some ...
With Safari, you learn the way you learn best. Get unlimited access to videos, live online training,
learning paths, books, interactive tutorials, and more.