The Risk of Emerging Hedge Fund Managers

Emerging money managers must establish a track record.

Hedge funds are among the riskiest investments to choose. Investing in emerging hedge fund managers inherently adds to the risk level because although these investment managers oversee less money than proven managers, they also have less of a historical track record.

Identification

Emerging hedge fund managers are investment managers who have yet to make a name for themselves in the financial community. Often, these professionals had a successful investment career at a large financial institution and decided to branch off from that corporation and attempt to create a successful business on their own.

Benefits

Hedge fund investors typically pay lofty fees to invest in these vehicles. Choosing to invest in emerging managers may lead to a lower fee structure versus investing with established firms. Also, emerging managers may require a lesser upfront investment. Emerging managers still have something to prove to investors, according to Preqin.

Considerations

Hedge funds have the potential to deliver blockbuster returns to investors. However, it is prudent for investors to select hedge fund managers who have weathered various economic cycles and kept the business intact. Emerging managers provide no such assurance.

References

• Preqin: News & Research