The key to making an investment is to find one that will yield as much profit as possible. One way to do this, according to Scott Tominaga, is by investing in hedge funds. While there is an added cost associated with this, it is a price worth paying.
Scott Tominage on the History of Hedge Funds
Hedge funds were first developed by Alfred Winslow Jones in 1949. He was one of the first to take investment strategies outside of the norm. He sold short stocks and bought long stocks, which was highly unusual. There are a lot of similarities between hedge funds and mutual funds, but hedge funds are not as regulated and they require bigger investments.
What Is a Hedge Fund?
Essentially, it is way for investors to make money by taking greater risks, through a strategy known as “leverage”. This means that an investor provides personal funds, while adding borrowed money at the same time. To be able to take part in this, an incentive fee also has to be paid. How much this fee is, depends on the profits made, rather than on the assets provided. The paid fees are also invested, ensuring people get even more money, so long as it is done properly.
In most cases, companies own hedge funds. This is because more money than individuals have is needed to get into them. In 2004, there were over $1 trillion in hedge fund investments. This was shared by just 39 companies.
How to Invest
There are a number of ways for people to invest in hedge funds. One is to buy stocks and shares of companies before they go through a merger. The difficulty in his is that it is hard to find out when a merger is going to take place. The risk is also that rumors on mergers may not be true. You could also consider short selling, in which you purchase contracts, commodities, and securities, that appear to be undervalued.
How Do Hedge Funds Help?
Hedge funds provide an exceptional level of security. That is because the government does not have to be made aware of them, as they are private, individual trades. They are not SEC (Securities and Exchange Commission) registered, and they are usually located in places where fewer regulations exist, such as the Virgin Islands and the Cayman Islands. However, this can look quite suspicious, because they are shrouded in secrecy. As a result, a lot of investors and businesses are criticized if they admit to using them.
Overall, hedge funds are very risky investments but when they pay off, they pay off big. If you want to invest in them, you need to have a lot of capital behind them. This, and the fact that they aren’t much regulated, is what sets them apart from mutual funds. Whether or not this is the right type of investment for you depends on a large number of factors, not in the least your ability to take a loss.
