Hedge Funds are a process of alternative investing. It's a type of investment at which funds have been pooled and invested with different investment plans to generate profits in a financial partnership between the fund manager and investors. The hedge fund manager is known as the general partner and investors are referred to as limited partners. The function of the limited partners is the investment of Canadian hedge funds and that of the typical partner is managing them. The investors are provided a hedge prospectus that offers information about key aspects of the fund, like the fund's investment strategy, investment type, and leverage limitation.

 

As the name implies, top hedge funds in Canada work in a manner to 'hedge' or avert threats. Thus, we understand that the target of Hedge funds is profit maximization along side risk minimization. They are meant to generate profits irrespective of the changes on the marketplace. They minimize risk by offering the investors to go long or short stocks. Shorting implies earning money once the stock drops.

 

An investment manager manages the Canadian hedge funds by way of a business that's distinct from the hedge fund and its portfolio of resources. The investment manager uses the help of the following service providers:

 

Prime agents

 

They aid in clearing the trade, provide leverage and short term lending.

 

Administrators

 

They provide services of operations, accounting, and evaluation.

 

Distributors

 

They fundamentally deal with distribution of 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 licensed investors

 

Investors have to get a certain net worth before investing in Hedge funds.

 

• Variety of Investment Options

 

It could be invested in numerous areas such as land, property, stocks, derivatives, currencies, etc..

 

• Use leverage

 

Borrowed money is often utilized to enhance returns.

 

• Fee

 

They charge a management fee and performance fee.

 

The most important gain of investing in Hedge funds is that the risk is lower than other types of investments. They can be said to be uncorrelated with market indices. Nevertheless, the fact remains they are prone to some amount of danger. Hence, it's a good way to be aware of all the potential risks before investing. It's also critical to select a fund manager who is experienced in the area.

 

Unlike mutual funds, hedge funds would 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 obtained, and the investor often has got direct access into the fund manager. A byproduct of this privacy is 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 types of allegations of dodgy dealings. The magnitude of the assets stored in these funds has also led to allegations that these funds have negatively impacted bond economies on different occasions. Canada regulators have tried to impose restrictions on these funds but there efforts are thwarted by the courts and the complexities of the funds and their offshore locations have created a regulatory nightmare for the SEC.