Posted on: 15th January 2015 in Investments
Hedge funds have significant benefits, such as higher returns, low correlation to traditional investment products and access to a wide range of assets and unusual trading strategies. At the same time, there are several limitations and disadvantages which you should keep in mind when considering hedge funds as an investment. High minimum amount Although hedge funds are generally less tightly regulated compared to mutual funds, their relative freedom comes at a cost. In order to avoid some of the regulatory requirements, hedge funds can only accept so called “qualified investors”, which simply said means rich investors who are able to withstand losses from the often risky trading strategies. In practice this translates into higher minimum investment amount that a typical hedge fund would accept. While it is possible to invest as little as a hundred dollars in a mutual fund, for hedge funds the minimum is usually tens or hundreds of thousands and often much more. Furthermore, investing all your capital in one hedge fund is rarely a good idea and if you want to diversify and invest in at least 5 or 10 different funds, you need to multiply the minimum amount by that. Low liquidity Mutual funds typically offer daily or weekly liquidity. You decide one day that you want to withdraw money from the fund and a few days later the cash is in your bank account. It is less simple with hedge funds. Their trading strategies often involve thinly traded assets and therefore liquidating a position quickly (to get cash for investor withdrawals) can cut into profits. In order to avoid that, hedge funds place various restrictions on redemptions:We have 18 offices across the globe and we manage over $2billion for our 20,000+ clients
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