Recently, experts have come up with a myriad of definitions for Hedge Funds. However, the most straightforward and universal definition of the concept will be as follows:

Hedge Funds are forms of financial partnerships where private and professional investors create a capital pool and use non-conventional investing strategies to amplify profits and minimize risks. 

They are also referred to as "Alternative Investments," which means that the traditional method of analysis that uses market conditions as indicators is inadequate for predicting a Hedge Fund's performance. 

Hence, placing Hedge Funds in the same category as traditional investments like Bonds, Stocks, or currency trading will be incorrect. 

How Are Hedge Funds Different from Mutual Funds and ETFs?

Though they bear similarities with Mutual Funds and Exchange Traded Funds, there are still some obvious distinctions. 

Most notably, in terms of asset limitation, risks, and strategy. 

Hedge Funds are not limited to specific assets categories. They can invest in anything from real estate, derivatives, landed properties, commodities (like gold), and more. 

In terms of risks, Hedge funds do not only bear a high exposure to market volatility, but they are also vulnerable to even the slightest market changes. 

That is because the investment strategies used in managing the funds are generally seen to be aggressive. 

For example, hedge fund investors frequently use leveraged positions, which is different from investing with borrowed funds. 

The success of such a strategy helps to enhance the potential profits significantly. However, the outcome can also be devastating if the market goes against the expected direction. 

Why should I invest in a Hedge Fund?

The history of the first hedge fund helps to answer the question. 

In 1949, investor and writer Alfred Winslow Jones conceived the idea and ran the first "Hedge Funding" experiment. 

Together with other investors, he created a funds pool of $100,000 and invested part of the sum in long-term stocks. 

Meanwhile, the second split of the funds was utilized in short-selling other stocks (thus forming a "hedge").

This innovation has gone down in history as the first application of a hedging strategy, today known as the long/short equities model. 

Mr. Jones also used the leveraging technique to boost his returns.

That said, here are the key benefits when you invest in Hedge Funds: 

• As a shield against the market: Hedge Funds offer more protection from market volatility than other investment options.
• Consistent returns: Hedge funds can invest in fixed income assets as a guaranteed way of earning reliable profits and fulfil financial obligations
• Portfolio diversification: unlike the stock market, Hedge Fund investing allows making investments in any asset class.

How can I Invest in Hedge Funds? 

Hedge Fund investing is generally capital-intensive. That means most Hedge Funds are accessible only to investors of high-net-worth. 

In most cases, only investors whose net worth is above the $1m mark get the nod to participate in the Fund. 

Individuals with an annual income of $200,000 (verifiable on the previous two years' income statements) can also qualify to become part of a Hedge Fund. 

Therefore, if you can meet any of the above requirements, you can get accredited to invest in a hedge fund. 

The high barrier of entry also explains why high-ticket investors and million-dollar companies mostly populate the hedge fund market. Simply put, it is the investment sector for the wealthy. 

Moreover, these rules are stipulated by the SEC (Securities and Exchange Commission). As a result, hedge Funding comes with a magnified scale of risks compared to other investment vehicles. 

Therefore, it is logical to raise the barrier high enough to only qualified hands to take risks. 

Can I invest in a Hedge Fund if my capital is small? 

The answer is yes. Retail investors at the entry level can invest in hedge funds via an indirect approach. 

You can opt-in by buying into a crowdfunding scheme that is aimed at investing in a hedge fund. This is also referred to as "fund of funds." 

Such investment pools tend to become outsized, with enough funds to invest into multiple hedge funds at once, thereby lowering the overall risks. 

On the flip side, however, they can be overly expensive. So you often end up paying more fees than you would with the direct route. 

What returns can I get in Hedge Fund investing? 

There are no fast rules for determining the earning potential of an investor in a hedge fund. Several factors can be taken into consideration to determine the possible outcome of the investment.

The most significant of these factors depends on the fund manager charged with executing the right investment strategy. 

That also explains why most investment experts believe finding a suitable fund manager is key when investing in a hedge fund.

Others also emphasize conducting proper due diligence on the stake behind a hedge fund before making a final decision. 

While these considerations are useful, they are not easy tasks to do. However, on the AxeHedge platform, none of these is important. . 

The soon-to-be launched platform will provide automated trading solutions for investors to manage their equities holdings in a hegde-like manner - from research to portfolio management. 

AxeHedge solutions are designed to improve investors portfolio performance by at least 40%. Already, there are over 500 prospective users on the wait-list.

We recommend you check it out for yourself.

Conclusion

Investing in a hedge fund can be a great way to balance risks and increase rewards. 

However, it's important to consider the potential pitfalls of not having a good fund management system.