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Private Investment Funds
Private Investment Funds are pooled investment vehicles that meet the Section 3(c)(1) or other listed exemption from public registration in the Investment Company Act of 1940. Private funds are offered to Qualified Investors.
Basics of Hedge Funds
Private Investment Funds, also known as ‘hedge funds’, generally invest in other securities and financial instruments. The investment strategies and portfolio composition of these funds vary widely and many follow a specific theme or investment purpose.
Building Wealth
Hedge Funds can add an element to an investment portfolio that may assist in achieving certain investment goals or add to the pursuit of investment returns. These investment styles may not be generally available in public or offered in traded funds.
Common Myths about Hedge Funds
1. The main purpose of a hedge fund is to hedge risk.
While some hedge funds use hedging as an integral part of their investment strategy, others may not use hedging at all, relying instead on a different investment approach. Some funds may use hedging with the sole purpose of pursuing additional returns, a strategy that generally adds risk for the possibility of outsized returns. A fund’s documents will specify what type of hedging practices the fund uses in its investment strategy.
2. Hedge funds invest in exotic securities.
Not all hedge funds invest in rare, unknown securities that most investors may not know about or consider for their portfolios. Some hedge funds invest in traditional holdings that are commonly available, such as exchange listed equities, bonds, ETFs, and other securities as their core investment strategy. Other funds may use a combination of rare, exotic, and more well-known instruments, or utilize a hedging strategy to pursue higher returns. Investment objectives and styles vary among these funds, providing many choices for investors to achieve their goals.
3. Hedge Funds are secretive and mysterious.
Private hedge funds are exempt from registration and may seem mysterious as a result. However, each hedge fund has an offering document that explains its investing goals, investment strategy, and potential risks associated with the investment. The offering document also provides details on how that strategy will be deployed. The most secretive part of hedge funds is that they are marketed only to accredited or qualified investors and are not available to the general public.
