Hedge funds allow you to safeguard yourself from risks. In a hedge fund, the funds are typically collected from different accredited investors such as insurance firms, banks, families, pension funds, endowments, and HNIs or High Net-Worth Individuals. Some of the assets included in a hedge fund portfolio are equities, derivatives, currencies, bonds, and convertible securities.
When compared to conventional investment funds, hedge funds tend to charge higher fees.
Now, a question might hit your mind- ‘ are hedge funds regulated ?’. Well, the answer is a big NO! They are not regulated like mutual funds. On top of it, a hedge fund deals with more leeway than these mutual funds. For more information on hedge funds, all you need to do is take a quick look at this article. Let’s dig deeper without any further ado.
What Are the Different Investment Strategies Used in Hedge Funds?
Let’s check out the plethora of strategies used in hedge funds at a quick glance:
- Arbitrage: It relies on leveraging the sale and purchase of closely-related investments.
- Event-driven : Looks for various investment opportunities in takeovers, corporate mergers, and bankruptcies.
- Credit funds: It usually takes advantage of lending inefficiencies and economic downturns, thus investing in items such as corporate and government bonds, distressed debt, capital notes, and convertible notes.
- Global macro: Attempts to predict movements in economies of different countries. After that, this analysis is used to invest in debt, equity, futures, commodities, currencies, other estates, and real estate.
- Quantitative: It solely focuses on tech-driven algorithms, thus reaching investment objectives.
- Short/long equity: Takes short and long positions while making different investment decisions.
What Are the Various Types of Hedge Funds?
Let’s pave the way toward uncovering the various types of hedge funds stated below in this article:
- Convertible Arbitrage : It is a type of hedge fund where a convertible security is brought while selling the common stock of the same company.
- Emerging Markets: Purchasing securities in different countries having emerging economies.
- Distressed securities : Purchase stock in different organizations that deal with several forms of distress, such as potential bankruptcy.
- Event-driven Investing : Purchasing securities that are totally based on events like company mergers.
- Fund of Hedge Funds : It is a type of pooled fund that typically invests in several other funds.
- Fixed Income Arbitrage: Selling and buying securities in a fixed income market.
- Market Neutral: Purchasing securities that are totally independent of the entire market performance.
- Macro: Buying bonds, stocks, currencies, and other commodities on the global market.
- Merger Arbitrage : Purchasing stocks of two merging organizations.
What Should You Consider Before Investing in Hedge Funds?
Take a quick look at some of the pointers stated below in this article:
- Check out the documents and agreements of the hedge fund.
- Learn about the risks that are involved in the strategy.
- Gain knowledge of whether the fund is using speculative or leverage investment techniques.
- Understand the potential conflicts.
- Understand the limitations.
To Sign Off
This is all about hedge funds. These kinds of funds are loosely regulated by the SEC. In order to clear all your doubts and queries, you can consider getting in touch with a financial advisor.