Hedge funds are alternative investment schemesthat accumulate money from accredited investors. They are high-net-worth individuals, wealthy families, commercial banks, trustees of endowment funds, custodians of pension schemes, and insurance companies. These high-profile investors appoint an experienced investment specialist to manage their hedge fund schemes. This expert, known as a fund manager, uses the funds from the scheme to trade invariousliquid assets. These include real estate, derivatives contracts, bonds, commodities, artworks, convertible securities, equities, and currencies. In doing so, the fund manager employs portfolio construction, complex trading, and risk management techniques. This ensures the investors are able to maximize their returns.
Scott Tominaga – How can small investors participate in hedge funds?
Scott Tominaga is a leading financial specialist and former FINRA regulator from Carlsbad, California, in America. He has over25 years of valuable experience in hedge fund investing and the financial service sector. He even has a thorough understanding of financial service companies’ back-office, administration, accounting, and compliance functions. During this illustrious career, he has been responsible for successfully implementing transparent operational infrastructures and reporting structures. In doing so, he has the privilege of interacting with various professional vendors and fund managers. Currently, he is the Chief Operating Officer of Partners Admin LLC.
He says many small investors show a lot of interest in investing in lucrative hedge fund schemes. Even the fund managers of these schemes welcome their active involvement. However, they expect them to fulfill the following stringentcriteria in order to participate:
- Own personal assets whose net value exceeds $ 1 million,
- Earn a yearly personals income of over $200,00 for at least two or more consecutive years, and
- In case they happen to be married, the annual income should be more than $300,000.
The investors should be able to provide the fund managers with the necessary evidence to prove they satisfy the above conditions. These can be in the form of tax returns, title deeds, and other similar documents. They also need to know that the fund managers will exclude the value of their primary residence when evaluating their networth.
Popular Hedge Fund Strategies
The small investors should also know about the common hedge fund strategies the fund manager employs to build their wealth. These are:
- Distressed Debt strategy, which involves buying bonds, stocks, and bank debts of bankrupt companies,
- Merger Arbitrage strategy where fund managers trade in thesecurities of twoamalgamating companies,
- Relative Value Arbitrage strategy involves the managers exploit likely price discrepancies in certain correlated investments assets,
- An event-driven strategy where the managers exploit fluctuations in stock prices in response to major corporate events, and
- The global macro strategy involves the managers making investment decisions depending on the economic trends of emerging countries.
Scott Tominaga concludes by saying small investors can accumulate their wealth within a short time by investing in hedge fund schemes. However, they should first read the schemes’prospectus before taking any decision. This document will inform them about the minimum amount they need to invest, the nature of their involvement, managerial fees, probable risks, likely returns, and the duration of the scheme.
