March 2, 2005 -- Hedge funds offer opportunities to investors seeking higher rates of return on investments than traditional mutual funds.  For the past several years hedge funds have been growing at a rate of approximately 20% a year.  Hedge funds have typically only been available to high net-worth investors and had significant annual income requirements.  However, recently developed hedge funds known as “funds of funds” have made it possible for a smaller investment to be made with typically no minimum net-worth requirement or income requirement.  These funds work similar to mutual funds by spreading their investment in other hedge funds.

While hedge funds are riskier than mutual funds the investment return is usually greater.  Hedge funds use sophisticated, quantitative models to invest in a wider variety of securities than mutual funds.  These models assist the funds in using short selling, leverage, and derivatives to manage risk.  Some believe that the reasons for higher returns are a result of the hedge fund managers usually being heavily invested in the fund causing them to share in the rewards, as well as the risks with other investors.  Hedge fund managers receive incentive payments based on the positive returns of the fund.

As with any investment, investors should thoroughly review and understand the hedge funds offering documents.  Also, many hedge funds are currently not registered with the SEC.  However, the SEC has issued a new regulation which requires registration by 2006.  

For more information, go to: http://www.asherco.com/services/specialty/financial.htm

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