Your 101 guide to Hedge Funds

1. Your 101 guide to Hedge Funds If you are looking to increase the total return borne by your portfolio, making hedge funds a part of your investment strategy is a pretty good idea. To know more about these amazing return-generating financial structures, read on –

2. An introduction to hedge funds Hedge funds are private funds that use complex investment strategies to mitigate risk and exponentially increase the ROI (Return On Investment). They are generally run by highly-skilled and experienced managers who have an extraordinary track record in the field of investment. Hedge funds make use of investment strategies and trading methods that are usually not available to traditional investment funds, such as mutual funds. They even have a freer hand in their methods of investment and can use a wider range of financial instruments for the same. Derivatives are investment risk management tools and they derive their value from the underlying asset. For example, take the scenario of a teacher and a student. The value inculcated in the student is directly dependent on the maximum potential value of the teacher. The more efficient a teacher is, the more knowledgeable their student will be. Similarly, hedge funds use these derivatives to hedge their positions, mitigate risks or cite a view on the future direction of the trend of a particular investment like stocks, bonds, and other such financial instruments. These additional supportive tools are only available to hedge funds and not to traditional funds. Like the two sides of a coin, if the profit is multiplied with the help of these derivatives, so is the loss in the case of a wrong investment call.

3. What are the benefits of making hedge funds a part of your investment portfolio? Your money is in skillful hands- Hedge funds give you access to some of the best investors in the market. As the success of the hedge funds is directly dependent on the investment capabilities of the managers that lead them, the best-performing hedge funds are often led by high-performing individuals who have a proven track record of generating returns that beat the market. Get a bigger hand in the world of investing - Since the hedge funds are able to access an increased number of investment tools, they are able to employ different investment strategies that their financial counterparts cannot. Leveraging is one such example. It is basically the ability to buy a larger lot value of any financial instrument by only paying a ratio of the total investment needed. This allows hedge funds to make an unbelievable amount of money when used right and the best hedge funds are leverage experts! A vast ocean of opportunities - Hedge funds can invest in the various financial markets present across the globe; this allows them to invest in markets and financial instruments that have higher profit potential. However, the risk also increases proportionally in the hopes of higher returns. Get to diversify your portfolio- Hedge funds are less attracted to financial assets that are directly affected by human sentiments and as a result, they tend to keep their distance from the movements of the public markets. As an investor, this works highly in your favor as you get to add a varied type of asset classes to your investment portfolio. However, this does not mean that hedge funds cannot deal in the public markets. Although not many, a few hedge funds do invest in the public capital markets but only when there is a relatively higher profit potential and that too at minimum risk.

4. What are the drawbacks? The commission Hedge funds charge relatively higher fees as compared to the other common funds. As an investor, you should familiarize yourself with these commission amounts and take them into account when deciding on which hedge fund to invest in. Little to no control on the investment methods To avoid losing their competitive advantage, hedge funds do not maintain transparency with their investors on how and where their capital is utilized. This essentially means that apart from choosing an investment strategy, you do not get a lot of control over how your money is spent. A higher loss potential Hedge funds love to take risks that are highly rewarding; however, the hopes of gaining huge profits also make them liable to incurring bigger losses. Leveraging is a commonly used hedge fund strategy, and this brings in the risk of magnifying your losses along with your profits. Also, different investment strategies have different risks attached to them and as an investor, you should definitely learn about the various types of risks involved and choose the hedge fund and the investment strategy that best suits your tolerance for risk. Not a very liquid investment Hedge funds set a certain time frame for their investors during which the withdrawal of funds is not allowed. This can have a negative effect if you ever urgently need the capital for an emergency. Nonetheless, ADDX is one such platform where you do not need to worry about the lock-up periods. With the ADDX Exchange, you can easily buy/sell the different listed hedge funds without any concerns for liquidity.

5. Who is eligible to invest? Hedge funds are very selective when it comes to deciding on who gets to get onboard their financial boat. In Singapore, you would need millions of dollars to invest in hedge funds even on the entry level. This makes them inaccessible to anyone but the super-rich. However, by signing up with ADDX, you can start investing in primary offerings for just $10,000 and get to trade them for as little as $100! There are a few criteria to be met before you start your investment journey with ADDX and you need to fulfill at least any one of those before you sign up. To clarify further, these are - 1)Your net yearly income should be a minimum sum of $300,000, or 2)You should have financial assets that are at least a minimum value of $1,00,0000, or 3)The net value of all of your assets should amount to at least a minimum of $2,000,000

6. What are the different types of hedge funds? Hedge funds are basically classified on the strategy they use to invest their capital and based on this criterion here are the 4 types of hedge funds that commonly seen in the market today - 1)The bull and bear strategy - The hedge funds that use this strategy usually believe in being the bulls or bears of a trade. This means they would buy a position in the financial market if they see a particular asset having the potential to rise and similarly, open a sell position if they find an asset that is dropping in value. This is also applicable in the derivatives market with the help of a call or put option; these are essentially contracts that give their holders the right, not a compulsion, to sell the underlying asset at a pre- defined price. 2)The unmoved by the market strategy - Hedge funds, as said in their name, hedge their position in the market. This technically means to open a buy and a sell position simultaneously in an effort to achieve a neutral market exposure. However, do keep in mind that this involves a deep understanding of the financial markets to generate profit out of such an impartial investment strategy. 3)The strategy of a merger - The majority of hedge funds include this strategy in their investment arsenal. This basically is the buying and selling of shares of a particular company before it is merged with another organization, in the hopes that after the merger, the new entity formed will have a valuation that aligns in the direction of the trade. 4)The macro strategy - These hedge funds only focus on the macro-economic events and make their investment decisions based highly on the news that causes significant market movements. Start your investment journey in the private market with ADDX. It is a proprietary platform that lets you invest with as little as $10,000! Get the opportunity to add to your investment portfolio financial assets like pre-IPO companies, unicorn start-ups, hedge funds, and other similar investments that would traditionally require very huge capital to start with.ADDX is regulated by the MAS (Monetary Authority of Singapore) and is open to all non-US accredited and institutional investors. Read More: A Beginner’s Guide To Security Tokens Here are 5 mistakes to steer clear of when investing in the private capital market Here’s everything you need to know about private equity funds What are unicorn startups and how can one invest in them?