A hedge fund is an alternative investment scheme that accumulates capital from a large number ofaccredited investors. They are wealthy individuals with a high net worth, commercialbanks, insurance companies, trustees of pension schemes, endowments, andcredit unions. These investors appoint an experienced investment specialistto manage their hedge fund schemes. This expert investsthe funds of the scheme in a diverse range ofhigh-yielding liquid assets. These include derivatives, foreign currencies, real estates, equities, artwork, company bonds, or convertible securities. The manager even employs various risk management and portfolio construction techniques to maximize the investors’ potentialreturns and minimize risks.
Scott Tominaga – Insight into hedge fund investing for small investors
Scott Tominaga is a renowned hedge fund specialist from America with over 25 years of valuable experience in the financial sector and alternative investment industry. He has an in-depth understanding of back-office operations, accounting, statutory compliance, marketing, administration, and cultivating investor relationships in financial firms.Currently, he is theChief Operating Officer in PartnersAdmin LLC, a corporate service provider specializing in outsourcing back-office solutions.
He says small investors are eligible to invest their money in lucrative hedge fund schemes in the market. However, the fund managers of these alternative investment plans will expect them to fulfill the following conditions:
- Own personal assets whose net-worth exceeds $1 million,
- Earn an annual income of at least $200,000 for two consecutive years, and
- If they happen to be married, their annual income should exceed$3,00,000.
Small investors should be aware that the hedge fund manager will not include the market price of primary residence whenevaluating the net worth of their personal assets. They also need to know the hedge fund schemes are exempt from theU.S. Securities and Exchange Commission (SEC) registration and some regulations. The relevant SEC statutory rules only apply when the value of investors’ assets in the alternative investment portfolio exceeds $100 million. Moreover, the hedge fund manager does not have to periodically disclose thescheme’s net annual value (NAV) to the regulatory authorities.
Investors should even have a sound knowledge of the investment strategies the fundmanager employs to enhance the NAV of the hedge fund portfolio. Some of the common ones are:
In this strategy, the fund manager buys up all of the senior debt of financially bankrupt companies.
- Merger arbitrage
This strategy involves acquiring shares of companies undergoing a corporate merger, takeover, or acquisition.
- Distress debt
Distress debt strategy involves buying bank debts, bonds, and stocks of companies facing a liquidity crisis.
- Global macro
In a global macro strategy, the fund manager invests in commodities, properties equity, and currencies of developing countries.
Scott Tominaga sums up by saying investing in hedge fund schemes is a viable way for small investors to enhance their wealth. However, it is prudent for them to read the prospectus of the schemes they are planning to invest in. This document will explain the nature of their involvement, lock-in time period, potential returns, risk factors, and managerial fees payable.Then, they can make a decision on whether to invest, keeping in mind their best interests.