LetsLearnFinance

HEDGE FUNDS

While there can be numerous ways & tools of investment,let us take a snap shot of one financial product which has strong presence but not with too much fan following and it is hedge funds.
Hedge fund is an investment type of unique approach and can be said as financial tool with diversified activities quite different from any other fund type as well as it is accessed by limited number of investors as per regulation.
Considered as class investment taking into account shares, debt instruments, commodities, and various asset classes into its portfolio, hedge fund have its orientation quite different from each other visible from their objectives hence adheres to with different methodology in approaching investment.
Why Hedge??
These funds often seek to pacify potential losses in the markets they invest in by hedging their investments using a variety of methods, most notably short selling. Over the period of time, however, though said that hedging reduces risk but itself the process of hedging
actually increases risk with expectation of capital appreciation.
Hedge funds meant for certain elite society and provides them with an exemption in many jurisdictions from regulations over short selling, leverage, fee structures derivative contracts, and the liquidity of interests in the fund.
Structure of Hedge Fund
A hedge fund is a tool of investing where money is pooled. Other than fund asset portfolio and cash money there is no other asset holding for the fund investment while its investors are its clients.
Talking about the service providers they are:-
Broker: Service provided against prime brokerage includes money lending, standing as counter party for derivatives, transaction of securities for short selling, clearance and settlement. Brokers popularly termed prime brokers acted as prime functionary as that of bank.
Administrator: They function mainly as operational back bone of the fund by processing
Purchase, redemption requests, issuance of interest, computing NAV.
Distributor - They are responsible for marketing the fund to potential investors and mobilization of cash fund for investment. Frequently this role is taken by the hedge fund manager.