Hedge funds are investment schemes that limited liability companies set up to accumulate funds from both accredited and institutional investors. These corporate enterprises appoint professional fund managers who are responsible for investing the money in a wide variety of assets. These financial instruments could include foreign currencies, real estate, stocks of other companies, and derivatives. The directors of these companies also implement common investment strategies that ensure their investors get maximum returns on their portfolios. In doing so, these officials also endeavor to limit the potential risks of their investors.
Scott Tominaga – What investors ought to know about hedge funds?
Scott Tominaga is a popular investment specialist from Carlsbad, California, with more than two decades of valuable experience within the finance industry. During this period, he has been able to develop a thorough understanding of the working of the various departments of financial service firms. These include back-office activities, compliance procedures, accounting, investor relations, marketing, and administrative functions. Many industry experts say he been the mastermind behind the setting up of several successful operational infrastructures. Currently, he holds the position of Chief Operating Officer in PartnersAdmin LLC and is a widely respected professional in the field.
How can small investors get into hedge funds?
He says many small investors show a lot of interest in investing in hedge funds. Unfortunately, these investment schemes are not for all of them. They need to keep the following five factors in mind when investing in hedge funds:
- The investors need to own personal assets in excess of $1 million to earn a yearly income of $2,00,000. This will enable them to fall under the category of accredited investors. Only then will the officials of popular hedge funds in the market consider their involvement in their schemes.
- They also need to understand how the fee structure of the fund manager can affect their investment. These investors may end up paying a management fee of 2% of their assets. They may even have to chalk out a performance fee of 20% of profits on their hedge fund investments.
- Investors should have a thorough understanding of the valuation process of hedge fund assets. For this, it is prudent for them to consult a qualified investment specialist to explain the entire procedure. The investors should also be aware that they may face certain restrictions at the time of selling their hedge funds holdings.
- The investors should know the limitations on their right to redeem their hedge fund holdings into cash when the need arises. To clear their doubts on this matter, they should consult their fund manager. Taking such a step can avoid any misunderstanding in the future; and
- The investors should also be aware of the common hedge fund strategies their fund manager may implement. These could include risk arbitrage, long-only equity, special situation, market neutral, convertible arbitrage, and distressed investing.
Scott Tominaga says hedge funds can be a viable investment option for many people. This is only possible when these investors have personal assets worth over $ 1 billion or an annual income of $2,00,000. They also are aware of fees they have to pay under the scheme, selling restrictions and limitations on redemption. Above all, investors should know the valuation process of assets under hedge funds and common strategies.