Hedge Funds are a process of alternative investing. It's a form of investment at which funds have been pooled and invested using different investment plans to generate profits in a financial partnership between the fund manager and investors. The hedge fund manager is described as the general partner and investors are referred to as limited partners. The role of the limited partners may be the investment of hedge fund in Canada and that of the typical partner is managing them. The investors are provided a hedge prospectus that offers information regarding key elements of the fund, such as the fund's investment strategy, investment type, and leverage limit.
As the name implies, hedge fund in Canada work in a manner to 'hedge' or avert risks. So, we understand that the target of Hedge funds is profit maximization along with risk minimization. They are supposed to generate profits regardless of the changes in the market. Shorting implies making money once the stock drops.
An investment manager manages the Canadian hedge funds by way of a business that is different from the hedge fund and its portfolio of resources. The investment manager utilizes the aid of the following service providers:
Prime brokers
They help in clearing the trade, supply traction and short term financing.
Administrators
They provide professional services of surgeries, accounting, and evaluation.
Distributors
They fundamentally deal with distribution of securities. A provider can be an underwriter, dealer or broker.
Investment strategies adopted can be classified as:
• Discretionary/Qualitative: These are strategies selected by the general partner or fund manager.
• Systematic/Quantitative: These are strategies suggested by way of a automated system.
Characteristics of Hedge Funds:
• Available only to licensed investors
Investors have to have a certain net worth before investing in Hedge funds.
• Variety of Investment Options
It could be invested in many areas such as land, real estate, stocks, derivatives, currencies, etc..
• Use leverage
Borrowed money is often used to enhance returns.
• Fee
They charge a management fee and performance fee.
The main advantage of investing in Hedge funds is that the danger is lower than other types of investments. They can be said to be uncorrelated with market indices. However, the simple fact remains that they are more likely to a quantity of risk. Thus, it is a good way to be aware of the possible risks before investing. It's likewise essential to pick a fund manager who's experienced within the field.
Unlike mutual funds, hedge funds would not have to disclose their activities to third parties. Investors in hedge funds nevertheless are entitled to a high degree of disclosure on risks assumed and positions accepted, and the investor often has direct access to the fund manager. A by product of this solitude is there are no official investment fund statistics. Their secrecy and lack of law have led to all forms of allegations of dodgy dealings. The magnitude of the assets held in these funds has also led to allegations that these funds have negatively impacted bond markets on various occasions. Canada authorities have tried to impose restrictions on these funds but there efforts are thwarted by the courts and the complexities of the funds and their offshore locations have created a regulatory nightmare for the SEC.