Where To Invest ? - Hedge Funds

Before I begin, I just want to manage your expectation, ie., investing in hedge funds is only for the RICH! So if you are not in this category, you better seek other investment options.

So what is a hedge fund? In simple terms it is about wealthy investors pool their money together, and whoever runs the pool decides how and where to invest it. Most hedge funds operate as limited partnerships, with the fund manager being the general partner with controlling interest, and investors serving as limited partners. Conceptually, they can invest in anything that makes money, including various non-traditional investment strategies, risky vehicles and derivatives that mutual funds cannot invest in. In essence, hedge funds target to profit even when the market doesn't move or falls. To illustrate how big they are, it is reported that they have controlled assets worth up to USD1.3 trillion at the end of 2006! It is also noteworthy that even some mutual fund companies have invested their money with hedge funds in order to increase their returns! If you read my recent article on global stockmarket selloff, hedge funds was in fact one of the culprits! Their sheer funds size is certainly in a position to influence the market!

Some of the major Hedge Funds include notable names like Goldman Sachs, Morgan Stanley, HSBC Private Bank, etc.

No doubt investors can potentially make huge returns from hedge funds, however, given its risky profile, the reverse (huge losses) could also happen! eg., Amaranth Advisors, who suffered financial collapse after losing USD6billion in a month!! In addition, hedge funds generally are not well regulated. So, even if you have the money, would you dare to put your money in such risky business? This will depend on your risk appetite.