It would be fair to say that hedge funds are one of the most talked about forms of investment around. They are something that tend to attract the wealthiest of investors, and this in itself means that the newspapers are happy to create the big and bold headlines based on them.
However, as with any topic, the more information that is published on a subject the more chance that inaccuracies can develop. This appears to have happened with hedge funds to an extent, with plenty of myths and misconceptions arising over the last few years.
Scott Tominaga has proven to be one of the experts in this industry over the last few years and has become accustomed to the various myths that have been thrown around it. Therefore, the remainder of this post will take a look at his views in relation to some of the biggest misconceptions that have emerged in relation to the hedge fund industry.
Myth #1 – Hedge funds are only open to rich investors
Once upon a time, this may have been correct. Now, the tide has changed.
The regulations surrounding hedge funds have changed a lot over recent times, and this has opened up opportunities for a range of people. It’s now possible for the general public to invest in Retail hedge funds, which might not have been the case several years ago. Back then, it was all about retail investor funds and due to the strict requirements that were associated with them, this meant that they only tended to be used by the very wealthy.
Myth #2 – Hedge funds are managed with little experience
Some sources suggest that hedge funds are handed out to inexperienced managers, and this really does impact the reputation on this form of investment.
However, if you were to look deeper into the issue and rely on statistics, it would quickly become proven that this isn’t true in the slightest. It was only last year that a survey found that almost three-quarters of hedge fund asset managers had over eight years of experience in the industry.
Considering the fact that these eight years just focus on hedge funds, and not the financial industry as a whole, it would be fair to say that it’s a form of investing that really is protected by experience.
Myth #3 – Hedge funds are completely risky
Let’s conclude our misconceptions with one that always does the rounds and is arguably more damaging than any others we speak about.
Hedge funds tend to have little correlation with stocks and bonds, and this immediately reduces any risk levels with this form of investing. Not only that, but to go off on another tangent, this prompts diversification which is obviously a key component in most portfolios.
It’s also worth mentioning that hedge funds tend to be one of the most monitored investment types and if they were riddled with risk a lot more questions would surely be asked about them.