Hedge funds pool money from investors and use complex strategies to generate returns for investors.
Hedge funds pool money from investors and use complex strategies to generate returns for investors. Some of the known strategies include derivatives, short-selling, leverage, and lately cryptocurrency among other alternative asset classes. Making money with hedge funds is not as direct as bonds and stocks. Besides, hedge funds are much more complex and are less regulated and operate in an opaque environment. It means that investors may not understand what they are getting into, which is partly the reason why these investment vehicles tend to work with high net worth investors who will put large sums of money. For this reason, it’s quite difficult to make the cut to become an investor in a quality hedge fund. The alternative for the average investor is to join a hedge fund indirectly through an organization or group. However, if you have more than $1 million and a sophisticated understanding of personal finance, investing, and trading, then you can easily access and make money by investing in hedge funds.
So you how do hedge funds make so much money? Hedge funds employ some of the most aggressive strategies, investing in areas such as short-selling, leverages, and debt-based investing. They can also purchase assets like real estate, art, and currency, something that other mutual funds can’t access due to regulatory restrictions. These are significantly risky investments, but the returns can be extremely high if the market turns out in favor of the hedge fund’s positions. Hedge funds take on riskier strategies to maximize returns, irrespective of the market conditions. The strategies are quite appealing to investors who are not risk-averse, hence want to earn returns even when bear markets.
A hedge fund can make lots of money if a market favors them. Hedge funds charge a management fee and a percentage of profits from investments. Typically, the fee is structured as 2 and 20, which represents 2 percent on assets under management and 20 percent of profits. To achieve this goal, they focus on the possibility of a better return, focused strategies, and diversification of their assets. From these strategies, some hedge funds can make as much as $1 billion a year, while others fail because they are unable to outdo the markets over 3 years to raise enough capital to make any meaningful profit. Hedge funds have become popular, hence holds as much as $3.8 trillion worth of assets today.
As an alternative to the traditional hedge funds, new investment vehicles are emerging with the rise of cryptocurrencies that tend to offer much more in returns with lower risks. Helios Fund is a platform that offers investment opportunities for Bitcoin (BTC) holders. The platform allows you to lock your Bitcoin for 3 years at a return of 9x your investment. This may raise the question considering how cryptocurrencies carry with them even more risks based on their volatility. Helios Fund manages these risks by investing in other areas that protect you from the risky market dynamics occasioned by crypto volatility.