Hedge funds are actively managed investment vehicles with flexible mandates, which makes investing across markets and across asset classes possible. While traditional portfolio managers are generally limited to long-only strategies, hedge funds can take a long or short position in different financial instruments, which offers diversified streams of income and at the same time, aims at greater protection against losses.
- Investing through a fund of hedge funds manager offers many potential benefits:
- Additional levels of diversification and active portfolio management between hedge fund strategies and dynamic options.
- Better access to the hedge fund universe. This includes lowering barriers to entry that arise from high minimum investment amounts for investments in individual hedge fund managers.
- Active management of hedge funds can contribute to better portfolio risk diversification and has even historically shown small fluctuations in value as pure long-only portfolios when hedge fund indices are compared with the MSCI Index.
- Access to a wide range of strategies with significantly different approaches to diversify sources of potential yield.
- Access to expert knowledge, resources and the operational infrastructure of a well-regulated and experienced fund house (e.g., more bargaining power for negotiating reductions in fees or negotiating favorable investment terms).
- Improved transparency – including disclosing risks.