Hedge Fund Strategies Open up to the Small Investor - through Mutual Funds
It makes people feel special, exclusive, to know that they've chosen hedge funds as their investment vehicle. They can be mysterious in the way they work, and they certainly make you look like one of the big boys. While this might really have felt good two years ago to small-time investors like you and me, in a world that has been burned by Bernie Madoff, and seen giants like Lehman Brothers collapse in a day, unfathomable exclusivity is not really a selling point. Transparency is. And so, to present themselves better to an investor community that is once burned twice shy, many investment houses, are opening their doors to the little guys, with hedge fund strategies that allow them to be used as mutual funds. Even a $1000 investment can get you in the big leagues, investing in things like merger arbitrage and commodity futures.
In mutual funds you'll find nothing more exciting happening today than the crack in the door you get into hedge funds. And people are certainly jumping on the band wagon. There has been twice as much money rolled into hedge fund strategies last year by small investors, as the past four years put together. The problem is, hedge funds haven't been around for small investors for long enough, that anyone should be able to tell if these are the right idea. The returns you make on these aren't measured by the usual market benchmarks you would see for other investments either. But still, financial planners have been around hedge funds in other markets long enough, to feel hopeful.
For the longest time, hedge funds were limited partnerships, and no one would have considered them a good investment opportunity if presented as a mutual fund. Hedge funds are not invest-and-forget propositions - your financial planner will need to do things like set daily price limits, and tinker with the asset base; doing this for the large customer bases that mutual funds have, can quickly become unmanageable. And of course, mutual funds are heavily regulated, and running around answering to these regulations can be something that hedge fund strategies don't take into account normally.
But hedge fund providers have no option. Their biggest clients, are beginning to demand this. Hedge funds strategies are not traditionally about providing investors with any kind of liquidity. In the economic meltdown two years ago, that kind of deal got a lot of investors into deep trouble. And so, the biggest are trying to alter the way hedge funds are handled, so that a little liquidity could be brought into the mix. They do much better than the market does in a depressed climate; but they don't do nearly as well as regular stocks in a healthy market. This makes hedge funds a great tool for the present, for the small investor.
Basically, this makes hedge fund strategies, the very thing you can hedge your investments with. These are not supposed to be your core investment plan. They are supposed be used to ensure that you don't take too much of a hit, should everything plunge down a black hole tomorrow.
