Chances are that if you’ve been looking for something to invest in, you’ve heard of hedge funds. Now, there are a whole lot of benefits that come hand in hand with investing in a hedge fund. Not only can you look forward to potentially brilliant returns, but you can build your personal financial portfolio at the same time, making yourself look all the more attractive to other investors or lenders, who will quickly be able to recognize that you are savvy when it comes to finances and have an eye for potential. However, if you’ve never dabbled in hedge funds before, you might find yourself feeling a little lost when you take some first steps towards getting involved. So, here are some basics that you should attempt to get to grips with before you start laying any money out!
Hedge Fund Basics
So, what actually is a hedge fund? Well, it’s a form of investment partnership that will see you alongside a group of other “limited partners” pooling money and other assets together. Once you’ve pooled sufficient assets, you will entrust them to a general partner who will invest them in a range of markets depending on your investment latitude (this is essentially an agreement in part of your hedge fund mandate that determines where your pooled funds can and can’t be invested).
They might invest in real estate, stocks, and shares, currency, or other markets. A good general partner will not only have plenty of prior knowledge and previous experience when it comes to all sorts of investments, but they will also have access to algorithmic trading software, such as that supplied by companies like AlgoTerminal.
Are Returns Guaranteed?
It’s important to remember that when engaging with hedge funds, you’re always dealing with an element of risk. The clue to this is in the name, as you’ll be “hedging your bets” with any investment. While the general partner will do their best to only place your funds in areas where profits and returns are likely, they can never be entirely sure of success, as everything is speculative.
They can only guess whether markets will rise or fall, so they have to “go long.” However, generally speaking, hedge funds are a relatively low-risk area of investment for you to consider. A good piece of general advice for anyone engaging with hedge funding is to only ever use money that they have as their own. Avoid hedge funds where the limited partners use forms of leverage, as this is when you start gambling with money that you don’t actually have, and is where you can begin to experience serious debt if your fund doesn’t ultimately pay off.
As you can see, hedge funds hold the potential to make you a whole lot of money, you just have to ensure that you choose the right one for you and only ever use money that you can afford to lose if things were to go wrong. So take a good look at everything that’s available to you before getting involved!