10 Things You Need to Know About Hedge Funds
There are around 8,000 hedge funds in the world that are collectively managing over $1 trillion.
This is because diversification and active management are core concepts that hedge funds provide for all of their investors. Having your money invested with a hedge fund allows you to outsource your investing to professionals so that they can work hard to grow your money.
Hedge funds manage your money and make investments on your behalf. This means that they also seek out the best talent in the industry so that they can keep performing at their best.
Interested in learning more about hedge funds? Youre in the perfect place. Here are a few essentials that you should know about investing in hedge funds.
1. A Historical Concept
While you may think that hedge funds have only come up in the last few years, the truth is that the first hedge fund opened its doors to investors back in 1949. Alfred Winslow Jones set out to create a fund and managed to round up investments totaling $100,000. While $40,000 was directly from himself, Jones managed to use the fund to prove the entire concept.
This saw more hedge funds slowly pop up over the years. However, the biggest boom occurred in the last few decades as purpose-built hedge funds managed to enter the mainstream market. These funds were not just designed to make money but were advertised as targeted investments.
In this way, hedge funds evolved to become dynamic and versatile investment vehicles. While modern technology has enabled people to invest for themselves, hedge funds offer a unique service to have experienced professionals handle the heavy lifting for you. The last few years have seen these professionals blend data and technology to make safer, more profitable investments.
2. Designed To Minimize Risk
There are thousands of hedge funds all around the world. While some hedge funds focus on a single market, some are designed to include stocks, shares, and options from around the world. However, every hedge fund is designed around the concept of diversification.
This means that the fund actively looks for multiple investments that it can make on your behalf. When you buy into the fund, you're essentially putting your money into a common pool. The fund managers then use the common pool to make collaborative investments on behalf of all the investors.
In this way, you can diversify your entire investment portfolio from day one.
3. Over $1 trillion Managed Around the World
If you think that hedge funds are exclusive clubs that you're not allowed to enter, think again. The truth is that hedge funds hold and manage over 1% of the world's investments at any given time. With over $1 trillion in assets under management, hedge funds are growing to become the most popular way to invest your money.
The reason why hedge funds are so popular around the world is due to the fact that they are providing a key service. Yes, you can do the research yourself and make investments that you're happy with. However, why not let experienced professionals take over that responsibility?
Hedge funds help save you time so that you can focus on what's really important to you. Since these funds seek out the best talent in the industry, you can rest assured that your money is growing for you in the background.
4. Different Types of Hedge Funds
If you're looking to invest in a specific industry or asset class, there's probably a hedge fund for that. This is because there are tons of different hedge funds out there, each with a unique focus. While some hedge funds may be designed to protect funds, others may be open to taking on more risk to grow.
5. A Wide Range of Investments
Hedge funds are not limited to one kind of investment. This means that a single hedge fund can have investments in multiple different companies in different markets at the same time. Holding a diversified portfolio is great to help minimize risk, but it also gives you access that you may not be able to enjoy on your own.
A single hedge fund can hold assets in the United States, Canada, Brazil, and South Africa at the same time. That same hedge fund can ditch the Brazilian shares and acquire shares of a company in Mexico by the afternoon. This is something that is nearly impossible for retail investors to accomplish by themselves.
Hedge funds have the skills, experience, and legal abilities to stretch your money in ways that you could never imagine.
6. A Variety of Financial Products
As mentioned above, hedge funds can invest in tons of different companies all over the world at the same time. However, they can also invest in several asset classes as well. This means that a single hedge fund can hold cash, stock, shares, options, derivatives, and shorts at the same time.
The most notable holdings for modern hedge funds are alternative assets such as cryptocurrency. This is a great way to naturally hedge against the rest of the market while giving you exposure to a massive potential upside in the process.
7. The Best Investment Managers
Hedge funds are run by extremely gifted and educated individuals. These funds technically run like independent companies that hire only the best to help manage the investments. Fund managers take control of the overarching strategy while individual managers handle smaller investments on a day-to-day basis.
This is a notable benefit of investing in a hedge fund as you can leverage the skill and experience of industry leaders to help grow your money. In most cases, hedge fund managers come with decades of experience and are incredibly wealthy and well-connected by themselves. This can help give you peace of mind knowing that they also have skin in the game while they work to grow your portfolio.
8. An Actively Managed Portfolio
A hedge fund is an actively managed portfolio of investments. This is what separates a hedge fund from a traditional index as the hedge fund can make snap decisions within the blink of an eye. This means that the asset list in the morning can look a lot different after lunch.
This form of management is essential to minimize risk at all times. If the fund manager thinks that an investment is no longer viable, they can sell the position and invest in something else. This keeps your money agile in the market, always ready to grow when the opportunity arises.
9. Performance Related Fee Structure
When it comes to putting your money in a hedge fund, many people wonder if the people working in the fund are dedicated to growing their portfolios. This is why the performance-related fee structure is in place. This fee structure links the fee you pay to the hedge fund with how well the hedge fund is doing that year.
In simple terms, the more money the fund makes you, the more you have to pay them. In the same breath, the less money the fund makes you, the less money you have to pay them. This is the simplest way to gain confidence in the industry as the structure itself is a sign of confidence.
The most popular fee structure in the market is comprised of two parts. The first part is a baseline fee that is payable no matter what. However, this baseline fee is incredibly low and can range from 1% to 2% in most cases.
The second part of the fee is the performance-related part. This dynamic rate refers to the percentage of profits that the hedge fund is entitled to. This rate can range depending on how much money you have invested in the fund, but generally is around 15% to 30%.
10. Massive Growth Opportunities
Hedge funds are designed to minimize risk, but they are also designed to make you money. These funds are agile investment vehicles that can move money around in the blink of an eye. In this way, your money can move to the best investments at the perfect time.
Crypto hedge funds may deal exclusively with cryptocurrency, but these funds can include more than just bitcoin alone. If there's a massive upside to be exploited in a different security, a crypto hedge fund can position itself perfectly to ride the wave.
Hedge funds are always on the lookout for new and innovative ways to invest on your behalf. This is why they have embraced various asset classes to help deliver impressive results year after year. These results alone make the fee absolutely worth it.
Diversify With a Crypto Hedge Fund
Hedge funds are a great way to diversify your portfolio. This is because there are different types of hedge funds you can invest in, allowing you to still have some control over where your money is going. However, the fundamental aspect of a hedge fund is to give you exposure to industry leaders that can help by investing on your behalf.
If you're interested in diversifying into crypto, a trustworthy cryptocurrency hedge fund is the way to go. Ready to get started? Reach out to us for more information today!
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Last updated June 1, 2022
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