There are different kinds of hedge funds, which have differing levels of profit and loss linked to them. Some investors take professional financial advise before deciding, which hedge funds to put their money into, and the ones they prefer to avoid. Others may invest on a whim, or use their own knowledge of money markets to pick the funds they hope will give them the highest returns. Hedge funds are offered to potential investors by banks, investment banks, and other financial institutions.
Therefore banks and financial institutions tend to set up hedge funds. Basically a hedge fund is when money is invested in the firm or firms the fund managers believe will provide high returns on the stakes invested. Fund managers evaluate the firms and industries are making the most money now, and, which ones make the most profits over both the short – term and the long – term. Funds then buy shares in the firms they believe will make them the most money. The more money that hedge funds can make the more likely that they will be able to attract more investors into them.
The banks and financial institutions that run hedge funds need these funds to consistently make large profits to keep investors buying into them. It is a virtuous cycle, the more profits a fund makes the more investors want to join that fund. The more investors that join the fund, the more money the fund managers have to increase their investments in the firms that are making the most profits. To a very large extent then money begets more money. Providing hedge fund managers get their judgement of the changing values of stocks and shares right then the funds should offer a sound rate of return for their investors.
The banks and financial institutions offer hedge funds with differing levels of risk. The returns offered can reflect the level of risk involved. The funds offering the highest potential returns can conversely be the ones with the highest risk of losing money over the course of belonging to those particular hedge funds. Such funds tend to invest in high technology firms that could make more money or may have a greater risk of losing money too.
There are other funds that offer lower returns but with less risks linked to them. Such funds tend to invest in firms that have been long established and make steady profits instead of much higher but uncertain ones. Pension funds tend to go for investing in the lower return but lower risk hedge funds.
Over all then hedge funds can be among some of the most profitable investments that you can make. You can take financial advise from experts, or you can decide by yourself where to invest your money. For anyone still confused try this