Hedge funds, also known as alternative investments, seek the maximum return regardless of the market trend, even in a bear market that in normal circumstances would imply losses.
They are funds that use highly sophisticated investment strategies and, unlike traditional funds, there are no regulatory restrictions or limits on the management fees charged.
Hedge funds are quite complex and are therefore not suitable for everyone. In fact, this type of product is targeted at professional investors. Besides, since the primary aim is to maximise profits, they usually a very high risk exposure.
The strategy behind theseinvestment funds mainly consists in acquiring any type of financial asset, and hedge funds are not subject to the investment concentration rules that generally apply to what we might call traditional investment funds.
This category of funds includes an investment method whereby one fund invests directly in other investment funds instead of in assets. This vehicle is known as a fund of funds.
What is the investment holding applied to hedge funds?
The investment holding is the unit, and the unit holders are the investors who buy units in the fund.
Issuer and market
Hedge funds, like other investment funds, are collective schemes with no legal personality. Their assets are managed by an investment company that exercises all administration and representation functions. The custody and administration of the securities in the fund are the responsibility of the depositary, which also monitors and supervises the management performed by the investment company.
Lastly, the distributor is the body that maintains commercial relations with the unit holders and sells the funds.
The price or market value of the fund is the net asset value, which is calculated at least once per quarter by dividing the total assets in the fund by the number of units in circulation at any given time. In the case of hedge funds, the market value may also be calculated on a half-yearly basis depending on the investments made, although some funds may decide to offer liquidity more frequently, for example once a month.
It is common practice to sell hedge funds in euros. The use of currencies other than the euro implies an additional risk -currency risk - because of possible fluctuations in exchange rates.