Investment : Hedge Funds
Being a first time investor, or an experienced campaigner, the investment universe can be a rather frightening one. With such a wide range of asset classes and investment portfolios available to meet varying objectives, we need to be pretty sure of what we are trying to achieve.
Most of us invest our spare capital into the markets in some form or another, be it through our savings and cheque accounts, our retirement annuities or pension funds, our unit trusts or life policies, or through other carefully thought out investment avenues. We usually call on the services of experienced professionals, who are geared and trained, to advise us on how to best meet our investment objectives. If we are knowledgeable enough we may even pick our own portfolios, but as knowledgeable as we believe ourselves to be this may be equally as trying as for the inexperienced individual.
With South Africa entering into a new global era of investing the choice has suddenly become even more challenging. Not only do we have to contend with portfolios of bonds, cash and equities, we now should also seriously be considering hedge funds, fund of hedge funds, property (listed or unit trusts) and Private equity (plain or mezzanine). We then need to throw this all in a pot, stir it up in order to best match our long term liabilities and growth prospects.
Generally equities, bonds and cash are the most likely to receive the largest allocation of your investment capital as historically they have the longest track records, are highly traded on the open markets, thereby making them very liquid (ie saleable), whilst being well regulated. Historically the equity markets have returned the greatest performance to date as compared to the two others, but have traded at a higher volatility (up and down movement in market price) than the bond and cash markets.
With the introduction of hedge funds and fund of hedge funds to our markets, some eight or more years ago, we have added a new dimension to the investors' arsenal. A hedge fund type product offers investors more stable or consistent returns, exhibiting less market volatility. Hedge funds have shorter track records than their predecessors but they seem still to be making their mark on the industry as individuals and institutions adopt them. Trading bonds, equities, cash, property, derivatives, over-the-counters (OTCs) amongst others, gives them a greater scope for making returns. They are therefore less mandated (restricted) to a particular type of instrument than traditional asset classes. They do tend to be less liquid than traditional assets but do however, attempt in earnest to limit downside performance and produce positive compounding. So if you are not a typical gunslinger that is intent on going all or nothing, hedge funds do tend to add tolerable returns to the investor,
Throw in property funds, which leverage off the retail, the commercial and the residential and occur in the unit trusts and/or the listed form, and private equity funds, which support the private company sector of our industry, and you should have a comfortable number of investment assets to match your growth and liability needs.
