Hedge Fund Risks
Hedge funds are very risky.
This structure means hedge funds managers are very risk tolerant.
This makes the funds very risky for the investor, who can lose all the money they invested in the fund.
Second, hedge funds invest in derivatives that are very risky because of leverage.
What happens if a hedge fund loses your money?
When Hedge funds when make losses, fund managers just get their fees and investor lose their money. On the flip side, when they make profit, it will negate all the previous losses. Management wise, a loss means more leverage. Direct loss of equity AND probable withdrawals from unhappy investors.
Are hedge funds legal?
Understanding Hedge Funds
Legally, hedge funds are most often set up as private investment limited partnerships that are open to a limited number of accredited investors and require a large initial minimum investment.
What is a hedge fund in simple terms?
Hedge Fund is a type of Investment Partnership.
They invest in publicly traded securities (stocks & bonds), and anyone is allowed to join. To protect general public investors, Mutual Funds are heavily regulated and restricted in what they can invest into.
What is the average return of a hedge fund?
A study by Yale and NYU Stern economists suggested that during that six-year period, the average annual return for offshore hedge funds was 13.6%, whereas the average annual gain for the S&P 500 was 16.5%.