Hedge Funds Involve Potential Risks
A Hedge Fund is an investment pool that is managed with the overall aim of reaching positive investment returns. Unlike mutual funds, the investment strategies of hedge funds are usually much more flexible and the hedge fund typically has very limited obligations for reporting and disclosure to its investors.
A good amount of investors purchase hedge funds assuming that they are protecting their portfolio from negative markets. However, this is not completely factual. Hedge funds usually come with a fair amount of risk and often underperform the market. They also usually come with annual fees of two percent in addition to twenty percent fee of any profits. Hedge funds are also exempt from state securities and most federal laws.
Due to these reasons, hedge funds are not required to follow essential disclosure protections that apply to majority of other investments. Investors are out of the loop concerning what they have invested in and how those investments are performing.