How To Invest In A Hedge Fund

So you are thinking about entering the world of hedge fund investing?  All you need is a high tolerance for risk and A LOT OF MONEY!  When it comes to deciding if you will be accepted as a private investor in a hedge fund, the manager is pretty much left to his own determination on whether or not you will be allowed into the fund.

Most hedge funds will reasonable believe that you meet their investing requirements, but are still legally required to ask you if you have the finances to invest in such a vehicle – so don’t be surprised if you’re asked to complete a lengthy questionnaire as part of the screening process.

A typical application may ask you :

  • Detail your current holdings (stocks, real estate, commodities)
  • If you have a net worth of more than $1 million

However, don’t think you will be deeply investigated if you can pony up the dough – as the hedge fund managers are not required to ask for much documentation to back-up the questionnaire.  You may need to provide one or two financial references (a broker) but don’t expect the hedge fund manager will dig deep into your financial history or tax returns.

So Why do Hedge Fund Managers Need To Ask These Questions?

Good old Uncle Sam (the Securities and Exchange Commission) – the government body charged with protecting investors, does not scrutinize hedge funds and they may be VERY risky investment practices such as betting on currency, shorting stocks or investing in derivatives.

New To Hedge Funds?  Get Some Help!

If you are considering investing a significant amount of money into a hedge fund, it may be worth your money to seek an outside professional to evaluate the fund to ensure it’s relatively solid.  It is not uncommon for hedge funds to completely blowup, but it is also not uncommon for hedge funds to return significantly higher margins than traditional stocks.

Third Party Brokers are Your Friends

Generally speaking, it is a good sign if your hedge fund holds its assets with a third-party broker.  It will make it harder for the hedge fund manager to take off with your money!

How Many Hedge Funds are out There?

There are literally thousands of hedge funds available for you to invest in, however typically the minimum investment to get into a hedge fund is between $500,000 and $1 million dollars.  This means hedge funds are not for the every day Joe.

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