What’s The Role Of Hedge Funds In The Investment Landscape?

There are some expressions and terms used in the fields of finance and economics. One of these expressions is hedge fund. Hedge funds are among the types of investment funds that have the least predetermined restrictions and are suitable for implementing the most flexible investment strategies.

The most distinctive difference from other funds is that it allows short selling or borrowing. What are the features that distinguish a free investment fund, also known as a hedge fund, from other funds?

Hedge funds are one of the fund types that can be invested by qualified investors and have no restrictions on managerial strategies and investment instruments. This type of fund can generally be sold only to institutions and individuals determined by the Capital Markets Board (CMB) as qualified investors.

Created specifically for qualified investors, the hedge fund differs from other securities funds with this feature. Hedge funds have high risk and high return potential. For this reason, the Capital Markets Board (CMB) has made rules stating that only qualified investors can invest in these funds.

According to the CMB, no investor who is not a qualified investor has the right to invest in hedge funds. Therefore, the investor must be qualified. It is essential for legal entities or real persons to have the characteristics determined by the CMB and to benefit from these funds, which contain high risk factors.

How Do Hedge Funds Operate And What Sets Them Apart from Mutual Funds?

Investment funds that have minimal predetermined restrictions in the money markets, where there are no obstacles, especially in terms of management strategies and investment instruments, and whose strategies can be followed, are called hedge funds.

Only investors who are accepted as qualified by the Capital Markets Board have the right to invest in hedge funds. The main difference of the free investment fund, also known as “Hedge Fund”, from other funds is their ability to make short sales and borrow money.

Hedge funds have different features than other fund types. This type of fund implements investment strategies that aim to provide certain income without any comparison and apart from market returns.

For this purpose, they can use various investment instruments, especially derivative instruments. The daily fund fee calculation requirement seen in other funds does not apply to hedge funds. The Capital Markets Board has provided the opportunity to announce prices for these funds once a month.

What Are The Investment Strategies And Goals Of Hedge Funds?

This type of fund is among the risky investment funds. For this reason, it is recommended to invest in this fund through investment consultants who have experience in hedge funds or professionals in the sector.

Free investment funds, also known as “hedge funds“, have significant differences from other investment funds. The difference of the hedge fund from other funds is that it primarily provides the opportunity to make short sales and invest using borrowed resources.

Some of the privileges that investors have thanks to this opportunity can be listed as follows:

• They can take both short and long positions.
• They can apply arbitrage strategies.
• They can simultaneously sell and buy securities that are priced below their value.
• They can invest in options and bonds.
• They can invest in all markets that provide high returns under low risks.

How Can Investors Evaluate Hedge Fund Performance And Fees?

In other investment fund types, performance-based remuneration is required to be based on a comparison criterion, and in cases where the comparison criterion cannot be determined in accordance with the principles in the Communiqué, performance-based remuneration cannot be charged.

In hedge funds, performance-based remuneration can be made without a benchmark, provided that detailed information on the subject is provided in the fund’s internal regulations.

Hedge funds are subject to an exemption from the calculation of performance-based fees granted to the management of portfolios of qualified investors. In this context, the benchmark used in performance pricing may differ from the actual portfolio component of the fund.

The fund, which is among the investment funds that only qualified investors can benefit from as an investment instrument, is called a hedge fund. Not all investors can benefit from these funds, as they must be considered as qualified investors.

It is important for investors who have the required qualified investor title to receive proper consultancy service in order to manage their funds more effectively.

Having a different management system compared to other funds causes performance-based remuneration to occur. In order for the fund to be successful, it is important to work with an expert team, as well as making the right moves, examining the risks and monitoring the fund.

Are There Risks And Challenges In Investing In Hedge Funds?

In terms of assets that can be included in the hedge fund portfolio, there is no difference from securities investment funds other than swap contracts and over-the-counter option contracts.

However, unlike securities investment funds, hedge funds can perform short sales and margin securities transactions.

In addition, it is possible to determine the open position amount, total open position amount and borrowing limits to be incurred due to derivative instruments in the fund regulations without being subject to the limitations in the Communiqué.

What Role Can Hedge Funds Play In Portfolio Diversification?

One of the ways to diversify the most profitable investment portfolios in terms of risk management is to look at hedge funds. It refers to a type of investment fund that minimizes certain restrictions and can follow an investment strategy as flexible as possible.

Such funds, in which institutions and a small number of wealthy individuals invest, are not obliged to disclose information to the public. Managers of hedge funds follow short-term market movements very closely and make purchases and sales very quickly and in large amounts. Professional staff of these funds can use derivative products with great skill. 

After the 2008 Crisis, some economists claimed that one of the reasons for the crisis was the aggressive investment strategies of hedge funds. The main difference between hedge funds and normal investment funds is their ability to short sell and borrow money (invest with borrowed funds). 

In addition, thanks to hedge funds, the investor can take short and long positions, apply arbitrage strategies, simultaneously buy and sell a security priced below its value, invest in options or bonds, and make investments in all kinds of markets that have the opportunity to obtain high returns under low risk. can invest.

See you in the next post,

Anil UZUN