Welcome to the aristocratic investment site ‘hedge fund’ world. The hedge fund industry is one of the fastest-growing industries in the world. The number of hedge funds has grown from less than 100 in the early 1980s. It's a positive return of the investment of the investors which is in a secured or riskiest way. It is a type of investment that is not based on the stock market. The hedge fund industry has been around a long time and it has a lot of experience. The hedge fund industry is a very competitive industry. It has a lot of competition. The hedge fund industry is for those richest persons who will be able to afford the higher fees and risk of hedge fund investing.
It’s considered an alternative investment. Their ability to use more complex investment techniques and leverage distinguish them from other asset classes available in the retail market, commonly known as ETF & Mutual funds. It is also distinct from private equity funds and other similar closed-end funds. It means it typically allows investors to invest and withdraw capital periodically based on the fund’s net asset value. But private equity funds generally invest in illiquid assets and return capital after a number of years. With the intention of increasing government oversight of hedge funds and eliminating of certain regulatory gaps in 2007-2008 followed by USA and Europe, hedge funds are not subject to many restrictions.
KEY TAKEAWAYS
Investing site to hope the positive return
Aristocratic investing platform for the richest who can be able to afford risk and higher fees
Very competitive industry
Fast-growing industry
Distinguished from other as investment platforms such as ETF, Mutual Fund & Private Equity Fund
Not subject to many restrictions
Characteristics of Hedge Funds
Absolute Return Target:
One of the most important characteristics of hedge funds is to provide an absolute return to clients or investors. It simply means that every hedge fund wants to achieve positive returns with their excellency.
Wide Investment Type:
Using long-term and short-term strategies hedge fund invests in traditional stocks and bonds along with forex, derivatives, real states, and mortgage products
Use of leverage:
Hedge fund uses leverage (borrowing money) to amplify returns. Though it's a risky practice, it can significantly enhance returns or even wipe out a hedge fund.
Less Liquidity:
To sell hedge fund shares is more difficult. Mutual trust funds having a per-share price are calculated every day. The price is the net asset value (NAV). It’s very easy to use NAV to sell shares at any time. But on the contrary, hedge funds attempt to generate returns over a certain timeframe called the lock-in period which is at least a year. In this time frame, investors are not allowed to sell their shares. Investors can withdraw their money by quarterly or bi-annually.
Fee structure
All hedge funds have a fee structure which is known as two and twenty (2 and 20%). 2% is for “Asset Management Fee” and 20% is deducted from the profit margin. This fee is range from 1% to 4% according to the criteria of hedge fund. Similarly, hedge fund managers invest aggressively to gain higher returns. This leads to increased risk for the investors
Global Macros Strategy
Using long-short positions in vast financial market hedge fund managers aim to reduce markets risk by investing convertible bonds, arbitrage funds, long/short funds & fixed income products
History of Hedge Fund (in brief)
The world was experiencing so much chaos after the end of World War II 1944, that time the major western government felt the need to generate a system to stabilize the global economy.
During that period “Bretton Woods System” was prominent and this agreement set the exchange rate of the US dollar against gold. As a result, all other currencies were to be pegged against US dollar. That stabilized exchange rates were for a while; the rules of system soon became obsolete and limiting before meanwhile the major economics of the world was started to change and grow at different speeds.
In 1971 after the abolishing of Bretton Woods Agreement, different currency valuation system replaced. With the USA in the main controlling seat, the currency market evolved to a free-floating one where exchange rates were determined by supply and demand. At the beginning it was very difficult to determine fair exchange rates. But later on, technology developing and modern communication eventually made things easier.
In 1990s we were thankful to computer nerds and booming growth of the internet. Because of than banks began creating their own trading platforms. These platforms being designed to stream live quotes allowed their clients to execute trades by themselves.
In the mid-term, some smart business minded marketing machines introduced internet-based trading platforms for individual traders. It was called “Retail forex brokers” that made easy for individuals to trade by themselves allowing smaller trade sizes.