Hedge funds have been known for almost 70 years. They appeared on the domestic market much later, so few investors can confidently answer the question: “What is a hedge fund?”. The features of their work and the possibility of making money using these funds will be discussed in this article.
American Hedge Funds: History
It was the American who was the first creator of the hedge fund. This happened in 1949. However, there is evidence that even in the years of the Great Depression there were prerequisites for the creation of such schemes. However, the precarious position in the market prevented the development of this direction.
Hedge funds are very important for the investment business. Their mass introduction occurred in the 80s of the XX century. What is a hedge fund and ordinary citizens have learned.
The US policy in this matter is such that not everyone is able to invest. This can be done by investors managing assets of more than hundreds of millions of dollars.
One of the factors of popularity is that a competent development strategy allows you to be in profit not only when the market is growing, but also when it is falling.
Soros, for example, has popularized US hedge funds. After all, the activities of his company "Quantum" brought a huge profit of one billion dollars, collapsing the pound.
In our country, hedge funds were officially allowed only in 2008. Almost 10 years have passed and now there are only 27 of them - this is a small figure.
What is a hedge fund and how to invest in it?
At the heart of hedge funds are a few simple principles:
- operate in any market;
- deal with all securities and derivatives.
This type of activity does not limit its work to any extent; its assets are formed from the entire spectrum of exchange and finance instruments. Due to such accessibility, the investor is not dependent on the market. Here, the rule of classical funds does not work: that is, if the market falls, stocks may not depreciate.
In this sense, hedge funds have enough tools to make money on declining quotes. They backed up most of the assets with derivatives.
Thus, hedging is a risk management system, where by buying one instrument that negatively affects the market, you can influence another instrument for the purpose of profit.
For example, if a dollar loan is taken, the consumer is extremely profitable to strengthen the ruble, if his income is in rubles. But if the dollar rises in price with the same initial data, the borrower will be at a loss. Large corporations, unlike the ordinary consumer, cannot put up with this situation, and hedging is used, for example, buying futures on currency manipulation at a reasonable price.
Here, hedging acts as a safety net to minimize losses, but it cannot completely eliminate all risks.
How to earn?
The beauty of hedge funds is that they are profitable in any market situation. The notorious Soros Foundation earned about a billion dollars a year. In times of a nascent crisis, hedge funds skimmed profit margins of up to 15% per year. Some received both 500% and 1000% for a ten-year period.
All these funds were guided by the principle of buying up undervalued securities and selling revalued ones.
Underestimated securities are characterized by record low cheapness, while it is believed that these assets have a certain potential. Thus, it is assumed that they will gain their growth positions. With overvalued - the opposite is true.
This strategy is primitive, since in reality there are a lot of such situations. It is characteristic that, for example, a large hedge fund Extranet Investment almost does not work with its own funds. Often, such organizations use lending, borrow valuable assets from brokers.
Structure
What is a hedge fund in terms of its structure? To create such a fund, the management company attracts investors, brokers and banks. The employees of this company operate in the sale and purchase of securities.
The work of the fund begins from the moment investors are interested. Their capital is managed by a fund. The guarantor bank holds investors' assets in various terms. As a rule, these are large banks with a good reputation.
The activities of the hedge fund are monitored by the administrator, who is also the auditor who evaluates the assets, conducts accounting, and compiles reports for investors.
The primary broker carries out technical operations. Most importantly, he must be able to carry out operations. Often, large banks act as primary brokers.
Types of hedge funds by the impact on the global economy
There are many classifications of hedge funds, for example, the IMF highlights:
- Global - conduct their activities in international markets, building strategies, studying quotes of individual organizations.
- Macro-funds prefer to conduct business within one country. Based on macroeconomic situations, they build a strategy for market behavior.
- Relative value funds operate in the field of the national market. These are classic hedge funds based on the principles of the relationship of asset prices.
Russian law defines hedge funds as unit investment funds. Investors should be highly qualified investors who own securities worth at least three million rubles. For a year, such investors must complete at least a dozen operations worth 300,000 rubles.
How to get involved?
Participation in a domestic hedge fund is not easy. And investors do not have confidence in Russian management.
For example, you can try the hedge fund Extranet, which represents a group of companies from the British Virgin Islands. This resource has extensive experience in the market. The declared goal of the company is to increase personal capital.
A hedge fund, whose personal account is available immediately after registration, has recently entered the CIS market. Prior to this, the professionalism of the organization was appreciated by American and European users.
Those who wish to invest not in a domestic hedge fund should open an account with a foreign bank. An investor must have an amount of one million dollars or more.
There are also alternative solutions. For example, with the help of domestic intermediaries, you can purchase a share in a foreign fund. However, this risky scheme is meaningless due to the low security of the shareholder and the difficulty of monitoring the organization.