Every person wants to make money. However, it cannot just come without making a initiative to look for it. This is why some group of accredited investors may decide to come together and agree on how they can make more money by exploiting the business opportunities available. They often achieve this through hedge funds. But just what does it mean? What are the guidelines on investing into it? We help you answer this.
A hedge fund is defined as the alternative investment that makes use of collected funds from members and employs different strategies to ensure that the investment generates profit for the investors.
l The investors who want to invest in hedge funds should be accredited. This is because most hedge funds are unregulated and therefore accreditation serves to check against some potential flaws in the business.
- Investors should be financially stable with some laws like in the US requiring them to have a net worth of at least $ 1 million.
- A huge initial capital investment is involved. This is why it is mainly associated with the super rich.
- Investors who wish to invest on a hedge fund should be earning a certain minimum amount of money every year.
- Withdrawals are limited to certain intervals during the year e.g quarterly and after half a year
- As an investor, you should also be having some good amount of knowledge about investment.
- Funds are managed by professionals with ample skills on different lines of investment
- Hedge funds investors compensate their mangers through an incentive fee and asset under management fee. This is usually obtained from a certain percentage of profits.
- It employs the use of limitations such as high water marks to curb against situations where portfolio managers are paid twice on the same returns.
- In some cases, fee caps are used in order to prevent hedge fund managers from taking on big risks that might negatively affect the investment.
In conclusion, hedge fund is one of the best ways to invest your money especially if you have excess. You join other members and employ a manger to invest it and make more money for you.