| Hedge funds are basically an alternative way to actively
manage traditional asset classes, but there are no consistent
return patterns across hedge-fund styles and the managers'
performance can vary widely. Hedge funds are managed
in an unconventional way, which means that the excess
returns may be based on the skill of the manager.
The first was set up in 1949 as an investment pool
using hedging and arbitrage techniques to trade in
corporate equity markets. Now the term refers more
broadly to a hedge fund's status as a private, unregistered
investment pool. Hedge funds are not required to register
under financial securities laws and do not offer their
securities to the general public, targeting sophisticated
investors instead.
How do hedge funds work?
Some do use hedging techniques, while some specialise
in distressed securities and special situations, and
others in emerging markets or short-selling strategies.
Plenty combine several different strategies, or invest
their money in a selection of other hedge funds in
order to diversify. These hedge funds can, if they
are well managed, reduce the risk to the investor
through the use of diversification across different
styles and markets.
Approved hedge funds in Singapore are generally classified
as 'Restricted' and only available to the 'sophisticated
investor', which means that the general public may
not be able to access these products. The minimum
amount that can be invested in hedge funds starts
at US$25,000.
THIS ARTICLE IS REPRODUCED COURTESY OF SMART INVESTOR
MAGAZINE
|
Personal Finance Matters 
