How to Give Money to a Hedge Fund
A lot of mystery surrounds the term "hedge fund." Only available to wealthy investors and principals of professional organizations, hedge funds managed over $1.5 trillion at their peak. Nevertheless, they receive less scrutiny than other forms of investments--like mutual funds--which means they can invest in a greater variety of assets like commodities, derivatives and short sales. Learn how to invest in a hedge fund.
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Instructions
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Get from your stockbroker a list of hedge funds that fulfill your criteria. The largest hedge funds in the U.S. are Bridgewater Associates, Citadel Investment Group, D.E. Shaw, Fortress Investment Group, Long Term Capital Management, Man Group, Renaissance Technologies, Soros Fund Management and The Children's Investment Fund Management (TCI). Bridgewater Associates manages the assets of less than 325 clients, yet it is worth over $50 billion. That hedge fund invests in currencies, bonds, stocks and commodities.
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Write letters to those hedge funds that interest you, and ask them what information they will need to approve you as a new investor. In addition, you should request information about their charges. For example, unlike mutual funds that are limited in what an investor pays, a hedge fund not only can charge a 1- to 4-percent management fee, but also a performance fee upwards of 50 percent of the profit made by the fund. Furthermore, ask for a list of the types of assets each buys. And finally, ask them to what extent your investment will be leveraged by borrowed funds.
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Expect to receive a number of forms to complete. Each hedge fund will want to know how much you intend to invest with it and how much income you earn. Furthermore, each will want to completely understand your financial situation before it approves your admittance. Not everyone that applies will be allowed to invest. It is that level of scrutiny that enables them to avoid the watchful eye of the federal government.
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Consider the money you invest in a hedge fund to be unavailable to you for an extended period of time. An investment in a hedge fund is very illiquid, so if you foresee a need that will require you to withdraw your investment, hedge funds may not be the ideal investment for you.
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