When it comes to investing, many people search for opportunities that will give them the highest return with the lowest risk. In some respects, they’re searching for that “sure thing”.
But, as we all know – there’s no such thing as a sure thing. There is risk with everything.
In the world of investing, certain funds are managed in such a way as to offer guarantees of specific returns; known as hedge funds, they ultimately aim to deliver absolute returns regardless of what happens in the market.
A hedge fund is a pooled investment fund that trades in relatively liquid assets and can make extensive use of more complex trading, portfolio construction, and risk management techniques in an attempt to improve performance.
Hedge funds currently fall into the category of alternative investments. Their flexibility in leverage and more complex investment techniques set them apart them from regulated investment funds, such as mutual funds and ETFs.
Since hedge funds generally invest in mostly liquid assets and are more open-ended, they are also quite different from private equity funds and other similar closed-end funds. This means they typically allow investors to invest and withdraw capital periodically based on the fund’s net asset value. In contrast, private-equity funds generally invest in illiquid assets and only return capital after a minimum investment period.
All of these features make them attractive to certain types of investment strategies, but they’re still not a sure thing.
Although hedge funds are not subject to the many restrictions applicable to regulated funds, lawmakers passed regulations in the United States and Europe following the financial crisis of 2007–2008 to increase government oversight of hedge funds and eliminate certain regulatory gaps. For us, in the South African market, it’s important to know how funds are treated in other jurisdictions, not just our own.
Although most modern hedge funds can employ a wide variety of financial instruments and risk management techniques, they can be very different from each other with respect to their strategies, risks, volatility and expected return profile. It is common for hedge fund investment strategies to aim to achieve a positive return on investment regardless of whether markets are rising or falling (“absolute return”).
Although hedge funds can be considered risky investments, the expected returns of some hedge fund strategies are less volatile than those of retail funds with high exposure to stock markets because of the use of hedging techniques. Hedge funds have existed for many decades and have become increasingly popular, having grown to be a substantial portion of the asset management industry.
At Victus Group, we help you understand the intricacies of your investment strategy so that it aligns with your values and goals. There’s no such thing as a sure thing, but we can mitigate risk and actively engage with your financial plan to help you keep it well adjusted to markets, products and your personal strategy.