A hedge fund is an actively managed portfolio of securities for investors that have a net worth of over a million dollars. The millionaires that partake in the hedge fund sign agreements that explicitly state that they are aware of the risks involving such an investment. Advanced strategies are used by hedge fund managers to utilize the funds in order to realize maximum returns.
These strategies may be leveraged positions in both domestic and international markets. It is important to note that an investor must abstain withdrawal of the investment fund for a period of at least one year. For such an investor to withdraw, he must first notify the hedge fund manager and issue sufficient notice thereafter.
Based on marc abrams hedge fund understanding of what a hedge fund entails, it is thereby important access how they can benefit investors.
In part, hedge funds were developed based on the principle of risk management. In the most simplistic of terms, it can be said that in such investments, the investor takes a “hedge” position. In essence, this means that the investor will be cautioned from the underlying risk in such an investment. Owing to the “hedge” factor the investor will at all times take a balanced approach and are thereby able to anticipate and avoid risk. However, it should be noted that not all hedge funds function in the described manner.
Good Hedge fund managers oversee and forecast the worst case scenarios of a particular investment and do a thorough risk assessment. Through such an assessment the manager is able to discern risk of loss of capital and thereby manage the risk.
Portfolio diversification affords a supplementary layer of risk management by precluding investors from beingoverly focused on a particular type of asset. Successful investors can agree that you should not put all your eggs in one basket. Hedge funds allow you to diversify in your investment. Diversification has been mostly done through stocks. Also, investors view diversification as not putting all your capital and assets in one company. Additionally, diversification requires a variety of assets such as commodities, foreign stocks, real estate and even bonds.
Professional asset allocation
When an investor has a diversified portfolio, then he’s in the correct path of investment but when an investor has a professional hedge fund manager who oversees his asset allocation things are undoubtedly elevated to an advanced level. Most hedge fund managers exude skill that is guided by training and education and therefore investors are able to trust their investment to them with an assurance of success.