Hedge funds refer to specific investment schemes, which either limited liability companies or partnerships launch in the market. The objective of the officials of these businesses is to raise money from accredited investors. They then invest the funds in a wide variety of financial assets, which include derivatives, land, properties, company stocks, and currencies. The officials also appoint a qualified fund manager to look after their investors’ money and implement suitable strategies. This is to ensure the investors get maximum positive returns on their portfolio while minimizing their overall potential risk.
Scott Tominaga – What are the various hedge fund strategies which investors should be aware of?
Scott Tominaga is an investment expert living in Carlsbad, California, who specializes in implementing lucrative hedge fund strategies for his investors. He is a finance graduate from Arizona State University and has over two decades of industry experience under his belt. He has in-depth knowledge of back-office activities, accounting procedures, compliance requirements, and relevant administrative functions of finance companies. Many of his superiors and colleagues acknowledge his role in establishing several successful operational infrastructures. He currently works as Chief Operating Officer for PartnersAdmin LLC and is experienced in hedge fund strategies.
This investment specialist says hedge funds are suitable for wealthy individuals whose personal assets are worth over $1 billion. Even investors with an annual income exceeding $2,00,000 for the last two years can consider investing in these schemes. They should also be willing to make a minimum contribution of at least $1,00,000 to participate in hedge fund schemes. Only then will fund managers assess and appraise their involvement. Moreover, they need to have a thorough understanding of derivatives, property, futures contracts, and stock markets.
He further explains it is important for investors to know two common hedge fund strategies that fund managers usually implement. These are as follows:
- Distressed Debt
In this strategy, hedge fund managers invest in corporate bonds and stocks of companies in severe financial crisis. These businesses cannot meet their obligations in the market because they are facing serious cashflow problems. This results in a devaluation of these companies’ stock and debts. The fund managers use various analytical tools to ascertain the proper value of these financial instruments. Only do they determine whether instruments are worth investing in.
- Fixed Income Arbitrage
This is a common hedge fund strategy that the fund managers use to maximize the returns of their investors. They seek to take advantage of observable price differences in financial securities, offering a fixed income. These could be in the form of company stocks, bonds, and derivatives. The price of these securities in the market may currently be at an all-time low. The hedge fund managers feel these securities will increase to their true value within a short time.
Scott Tominaga clarifies that hedge funds can help wealthy individuals enhance their wealth over time. The net worth of these investors should exceed $1 billion or have an annual income of $2,00,000. They should also be willing to make a minimum investment of $1,00,000. The investors also need to have adequate knowledge of how the property, derivatives and stock markets work. Above all, they should have a clear understanding of hedge fund strategies like distressed debt and fixed-income arbitrage.