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August 28, 2006
Finding the Right Hedge Fund
Hedge funds used to woo investors by providing great annual returns of 10% to 15%. However, hedge funds' returns have not lived up to expectations in recent years. Huge inflows of money have hampered investment returns, as fund managers struggle to find innovative ideas for the large amounts of money entrusted to them for investment. Hedge funds should not be considered a separate asset class because they invest in the same equity and fixed-interest securities as traditional fund managers.
Since there are many different hedge funds available, you may find it tough to select the right hedge fund. Always think of hedge funds as small businesses. Do not limit yourself to hedge funds that use an equity long/short investment strategy. Always keep in mind that many equity long/short hedge funds are really long funds in disguise, which will fluctuate with equity markets. You should invest in hedge funds that operate in "positive alpha" pools. That will maximize your profits.
Read our previous post titled "Main Characteristics of Hedge Funds" to know more about hedge funds.
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