A hedge fund is an investment fund open to a limited range of investors. It undertakes a wider range of investment and trading activities in addition to the long term investment funds. Every hedge fund has its own investment strategy that determines the type of investments and the methods of investment it undertakes. Hedge funds are invested in a broad range of investments including shares, debt and commodities. With the industry figures touching 2.5 trillion USD in 2008, the hedge fund industry is definitely set to achieve greater heights.
[...] Lever Another fundamental characteristic of hedge funds is to use the lever to increase yields. The lever is made either by borrowing from banks. This ensures that the capital is not exhausted completely Strategies employed in Hedge-Funds Event-driven Strategy: These are not related to equity markets or interest rate except in extreme conditions. These are investments made in securities in distress (distressed debt), the securities subject to a takeover (Merger Arbitrage) and special situations like restructuring of the company. The trader must estimate the value of securities after the completion of the transaction if it materializes, the time that the transaction takes place and the probability that it happens. [...]
[...] Distressed Debt: Investments can be done in debt or capital of a company that is in difficulty or that is bankrupt as it can meet its financial liabilities. Expansion Capital: Investment can be made in listed companies or private individuals that present an opportunity to develop their business. The investment will just expand the activities of the company. Fund of Funds This is the class of Multi - Managers. The interest of a fund of funds is to create stable returns while reducing risk. This is the principle of portfolio management. Fund [...]
[...] Portfolio Management One of the main advantages of investing through a fund HFS is the expertise of the manager who handles allocation strategies, investment tenure and the underlying funds while controlling their risk and return. The manager must also undertake a due diligence and constantly monitor performance. Hence, it is important to exercise due diligence while selecting the portfolio manager. Additional Fees The hedge fund investor must shell out a double layer of fees. One part is to be paid to those already charged by the HFS and the other to those charged by the HFS funds. The investor should therefore calculate the management fees and expenses. [...]
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