People these days always try to look for new ways to grow their money and expand their financial portfolio. The involvement of people in diverse investment strategies has increased significantly over the years. Scott Tominaga says that use of hedge funds in financial portfolios of discerning investors has especially augmented quite dramatically since the start of 21st century. Simplifying the term, he mentions that hedge funds basically refers to a type of an investment partnership that enjoys greater flexibility and free reign when it comes to investing aggressively, as well as in an expansive variety of financial product than majority of mutual funds. The risk involvement in this investment vehicle tends to vary, but it has the ability to provide people with great returns in a short period of time.
Hedge funds a type of alternative investment option. Investors across the world employ distinguished strategies to earn active returns with the help of this investment vehicle. Hedge funds can either be managed aggressively, or even can use leverage and derivatives in domestic, as well as international markets with the key aim of acquiring high returns in quite less time. It is crucial to note that hedge funds are major accessible to only the investors who are accredited, as they tend to need lesser SEC regulations in comparison to other funds. One of the prime elements that set the hedge fund domain apart from other investment options is that it has the involvement of much lesser regulations in comparison to mutual funds and other investment vehicles. Each of the hedge funds are designed to take advantage of distinct, identifiable market opportunities. They additionally use a varied range of investment strategies, and therefore are classified as per the style of investment. This is a considerable level of difference between the risk attributes, as well investments among these styles. Scott Tominaga points out that there are various types of strategies people use when it comes to making hedge fund investments. Here are a few of those strategies:
- Long/Short Equity
- Market Neutral
- Merger Arbitrage
- Convertible Arbitrage
- Fixed-Income Arbitrage
- Global Macro
- The Bottom Line
In addition to individual investor portfolio, hedge funds also have a crucial arbitrage role to play in eliminating or reducing any kind of mis-pricing in the financial markets. They are considered to be a vital source of liquidity, in the periods of stress, as well as calm. Scott Tominaga underlines that hedge funds have the capacity to add much needed breadth and depth to the capital markets. They provide a crucial source of risk diversification and transfer, by taking risks that would have otherwise remained on the balance sheet of other financial institutions.
Hedge funds are renowned for featuring the involvement of a classic mix of elements and factors that have been associated with institutions right at the center of stress in past situations in the financial market. Such investments vehicle can be significantly leveraged, and be active in complex instruments.