Understanding Hedge Funds
To best understand a hedge fund, and how a hedge fund works, a good starting point comes with the term hedging. When someone hedges, they are looking to reduce the level of risk that they are exposed to, and this is true for this investment strategy. A hedge fund is aiming to provide a strong return on investment while reducing the level of risk involved for the investor.
While an individual will provide funding for this investment, hedge funds are seen as collective investments, using money from a range of sources or investors. A key difference this strategy offers, when compared to unit or investment trusts, is that it can provide a return no matter what way the market grows. Other investments will often only provide a return when shares are rising or the market is moving up, but a hedge fund can provide a return whether the market is moving up or down.
Given that risk is an integral part of investment, it is impossible to find an investment with no risk at all but a good hedge fund manager will be able to create an investment strategy with a minimal level of risk. The benefits and returns of a successful hedging strategy is the reason why successful hedge fund managers are paid so much money for the services they provide.
Who can benefit from hedge funds?
When it comes to benefiting from hedge funds, everyone can technically benefit from this investment strategy, but it is important to meet the criteria. Different fund managers or businesses have different criteria on which people they are willing to work with. It’s not uncommon for hedge funds to impose minimum investment criteria for clients, perhaps even as much as £500,000.
While this may seem like a negative aspect for anyone unable to meet the criteria, for the chosen investors, it provides additional benefits. With a limited number of parties investing, it allows hedge fund managers to provide a bespoke service, allowing them to spend more time on each client and each investment.
Hedge fund opportunities are becoming more readily available than they were at the start of the millennium, and this is likely to continue. However, this is an investment opportunity that is more tailored towards significant investors as opposed to someone looking to invest a modest amount of money or make small but regular top-ups to their fund.
Why is it important to consider hedge funds?
While hedge funds are just one way that someone can invest their money and look to make a positive return, the benefits associated with this practice makes it a strategy well worth considering. The key benefits associated with hedge funds include:
- Reduction in risk.
- Diversification assets.
- Assets managed by trained and skilled professionals.
- Hedge fund manager has incentive to perform as they prosper when you do.
While reducing risk and diversifying your assets are the headline benefits of hedge funds, the fact that hedge fund managers are trained, skilled and experienced in this line of work is often what most appeals to people.
When making an investment, it is best to be as informed it as possible. Most people don’t have the time to study various markets, or don’t have the specialist knowledge to make sound decisions, meaning their investments are be based on hunches and guesswork.
Professional experience makes the difference
In this environment, the guidance of someone who is professionally involved with the market is of benefit, because they have a much stronger starting point with respect to choosing what to invest in. Using a privately-owned hedge fund sponsor is often best for anyone who appreciates the benefits of hedging, but doesn’t know where to begin.
Leo Fund is a privately-owned hedge fund sponsor with professionals who are highly regarded in the marketplace. Leo Fund Principal, Chief Investment Officer and Director Stefano Roma is a qualified chartered accountant, a full member of the Italian Financial Analysts Association and holds the stock broker professional qualification issued by Italian regulator COSNOB.
Roma also has a degree in economics and commerce from the University of Rome and a postgraduate diploma in financial inter-mediation from Bacconi University, Milan. He launched Leo Fund in July 1999, after starting his career as an auditor at Arthur Anderson in Rome and Milan.
Anyone that has notable sums of money to invest and is looking for an investment strategy with a reduced level of risk will find that hedge funds are a suitable way to utilize their time and money.