Most people have heard about hedge funds, but would struggle to explain what exactly they are. Now, however, it might be a good time to brush up on your hedge fund knowledge; as new regulations have made them accessible to retail investors. Until recently, only institutional investors such as retirement funds were allowed to invest in hedge funds, but recent legislation changes mean that all investors can now consider hedge funds as part of a balanced portfolio.
While no investment type can guarantee returns, particularly over the short term, hedge funds are great diversification tools and offer advantages that other investments cannot.
The South African retail hedge fund market (the hedge funds which are available to the public) officially opened in February with the launch of two products from Novare.
So, what does a person who is considering a hedge fund investment for the first time need to know about these products? Eugene Visagie, Head of Hedge Fun Investments at Novare says, "All the money invested in a hedge fund goes into a pool, with a fund manager deciding which assets to invest in. Just like unit trusts that represent the majority of people's retirement investments, fund managers for the most part invest in stocks or bonds. However, hedge funds have other tools at their disposal that unit trusts do not. Probably the most significant of these is that hedge funds are able to make money on an asset even if it declines in value".
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