The hedge fund manager is known as the general partner and investors are referred to as limited partners. The role of the limited partners will be the investment of hedge funds Canada and that of the general partner is managing them. The investors are supplied a hedge prospectus that provides information about key elements of the fund, like the fund's investment strategy, investment type, and leverage limitation.
As the name implies, hedge funds Canada work in a manner to 'hedge' or avoid risks. So, we understand that the target of Hedge funds is profit maximization along with risk minimization. They are supposed to build profits regardless of the fluctuations on the market. They minimize risk by offering the investors to go long or short stocks. Shorting implies making money when the stock drops.
An investment manager manages the top hedge funds in Canada via a business that's different from the hedge fund and its portfolio of assets. The investment manager uses the help of the following Companies:
They aid in clearing the trade, provide leverage and shortterm financing.
They provide professional services of operations, accounting, and evaluation.
They basically deal with supply of all securities. A distributor is definitely an underwriter, dealer or broker.
Investment strategies adopted can be categorized as:
• Discretionary/Qualitative: These are plans selected by the general partner or fund manager.
• Systematic/Quantitative: These are strategies suggested by way of a automated system.
Characteristics of Hedge Funds:
• Available only to accredited investors
Investors have to have a certain net worth before investing in Hedge funds.
• Variety of Investment Options
It could be invested in many areas such as land, property, stocks, derivatives, currencies, etc..
• Use leverage
Borrowed money is often used to enhance returns.
They charge a management fee and performance fee.
The major gain of investing in Hedge funds is that the danger is lower than other kinds of investments. They are sometimes said to be uncorrelated with market indices. Nevertheless, the fact remains that they have been prone to some quantity of danger. Hence, it is a good approach to be careful of all the potential risks before investing. It's also essential to pick a fund manager who is experienced in the area.
Unlike mutual funds, hedge funds do not have to disclose their activities to third parties. Investors in hedge funds however are entitled to some higher level of disclosure on risks assumed and rankings taken, and the investor often has direct access into the fund manager. A byproduct of this privacy is that there aren't any official hedge fund statistics.
Hedge funds are often targets of criticism.
Their secrecy and lack of regulation have led to all kinds of allegations of dodgy dealings. The magnitude of the resources held in these funds also has led to allegations that these funds have negatively influenced bond markets on different occasions. Canada regulators have tried to impose restrictions on these funds but there efforts are thwarted by the courts and the intricacies of the funds and their offshore locations have created a regulatory nightmare for the SEC.