November 18, 2006
Hedge Funds Pros and Cons - Hot Topics Q&A
Q. I have heard that you can obtain large returns on your money by investing in Hedge Funds. What are these, and how do they perform?
A. A Hedge Fund is not one beast. There are many different types and strategies, but all share the one goal of achieving the best absolute return. The fund managers are heavily incentivised by being rewarded only when their return is positive. This, in theory, attracts the brightest and best to manage a hedge fund rather than managing a normal fund.
Results are varied, and some funds have outperformed. However, according to an article in Moneyweek recently, if you take the average hedge fund over the last 12 years, the return after fees was 9% pa. Over the same period, if you had bought a U.S. tracker fund in the S&P 500, it would have returned over 11% pa.
So, as usual, check the hype before investing!
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Filed under Investing, Q&A by Ray Prince
