As the economy has taken a tumble across the globe in recent years, many investors have been left scrambling to find a way to recover from their losses and rebuild their investment stakes. Investors have increasingly been looking for good ways to diversify their funds and many have decided to learn more about hedge funds, as a way to help them keep their money growing in places other than the stock market.
Some people who are new to investing might get mixed up as far as understanding the difference between hedge and mutual funds. Mutual funds are highly regulated by the SEC in the United States, and by other financial governing bodies in other countries. A hedge fund, on the other hand, is more of a private investment vehicle and is very loosely regulated, and these pooled funds are usually limited to a maximum of 100 investors.
Another unique aspect about these funds is that they are not openly advertised as other investment vehicles, such as mutual funds. The fact of the matter is that while these private investment pools are not tightly regulated, they are not allowed by the SEC to do any type of advertising or soliciting. As a result, most people find a fund to invest in by means of word of mouth or by some existing relationship with a hedge fund manager.
Some people say that hedge funds are not regulated at all, but this is not quite accurate. While investors do enjoy a much greater degree of freedom in how they operate and how they invest the money in their funds, they still do have some guidelines and regulations they must operate under. These regulations do vary depending on where the operating office of the fund is located. In many instances, the legal location and the physical location of the services are in different places, usually in two different countries.
It is speculated that the global hedge fund industry controls an enormous amount of assets, into the hundreds of billions of dollars, but because investors are not required to provide any governing agency with annual reports, the exact numbers are unknown. This aspect scares off some investors, but for those looking to diversify their investments it is worth learning more about hedge funds to determine if they are a good investment vehicle for part of your portfolio.
Ms. Ebele Kemery is a member of the Global Fixed Income, Currency & Commodities (GFICC) Group. Based in New York, Ebele is the head of Energy Investing within the Commodities team. Prior to this role, she provided institutional client relationship management and tailored risk management solutions in the Investment Bank’s Global Commodities Group.
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