How to invest in a hedge fund

Investors poured $13.1 billion of new cash into hedge funds during a single quarter last year. How can you get in on the action, too?

Hedge funds grew larger in Q4 of 2010 than they have during any other quarter in history. The industry ballooned by $149 billion, according to Hedge Fund Research data, bringing assets under management in the industry to $1.917 trillion.

While most of the growth came from strong performance by the funds in Q4, investors also poured $13.1 billion of new cash into hedge funds. How can you get in on the action, too?

First, it’s important to understand what a hedge fund is. They differ from mutual funds in that they typically use a combination of derivatives and long and short positions to – as the name implies – hedge positions as a way to protect capital while pursuing gains. Thanks to relatively light governmental regulation and the ability to leverage positions, hedge funds can take risks that more traditional funds can’t. For that reason, most jurisdictions limit who can actually invest in hedge funds.

Hedge funds generally fall into two camps: a 3(c)(1) Fund, which is limited to 100 or fewer investors or a 3(c)(7) Fund, which is generally limited to accredited investors.

Since 3(c)(1) hedge funds cannot have more than 100 investors, they’re typically offered on an invitation-only basis (translation: you need to know someone or at least know someone who knows someone). To be eligible to invest in a 3(c)(7) fund, you’ll have to qualify as an accredited investor or qualified purchaser (translation: you need to have a high net worth).

How much money do you need to invest in a hedge fund? First of all, you’re going to have to meet the hedge fund’s initial investment requirements and accept the fund’s management and performance fees. Then you’ll have to qualify as an accredited investor, which means you have a minimum net worth of $1 million (or, alternatively, a minimum income of US$200,000 in each of the last two years and a reasonable expectation of reaching the same income level in the current year). Alternatively, you could qualify as a qualified purchaser, which means you’d need more than $5 million in investment assets.

A new and emerging way to invest in hedge funds comes via ETFs. The MW TOPS Global Alpha ETF, for instance, mirrors a basket of Marshall Wace’s TOPS investment strategies, which use mathematical models to evaluate and capture the best available ideas from brokers, Reuters reports. Shareholders in the ETF should, in theory, get the same returns as Marshall Wace’s TOPS hedge fund participants. The Global Alpha ETF currently trade on London and Frankfurt stock exchanges.

In general, though, hedge funds are operated by and for the wealthy, and they come with the expectation that both parties are sophisticated enough to recognize the unique risks and rewards hedge funds offer. Even once you get in, though, that’s no guarantee you’ll get great results. That trophy in the distance will be bigger, but so will the fish you’ll be swimming against to win it.



3 signs gold is in a bubble in 2011?


How to invest in uranium? With a uranium ETF, of course (URA)


Top 5 reasons to invest in silver bullion


Could Google sink Demand Media (DMD)?


How to Invest in Copper


3 reasons to buy LinkedIn shares during IPO

1 thought on “How to invest in a hedge fund”

  1. Wealthy investors with a high Financial IQ, understand to be truly diversified you need to invest across all four primary Asset Classes which are:

    Real Estate,

    Paper Assets (stocks bonds and mutual funds)


    And Businesses by way of Joint Ventures or owning preferred shares.

    Investing in the four primary asset classes is the secret of accumulating enormous Wealth..

    This is why Investing in a Syndicate Mortgage should be a key component of your wealth creation strategy.

    The fundamental investment principles of Banks and Pension funds are Security, good returns and cash flow.

    A Syndicate Mortgage allows you to invest like a Bank or Pension Fund.

    Everyone knows the vast majority of wealth created since the beginning of time, was created through Real Estate, not flipping homes, but acting like a Bank and being a lender to large scale development projects.

    Let’s take a look at some of the reasons you want to invest in a Syndicate Mortgage.. but before we do….. let me explain in simple terms what a syndicate mortgage is.

    A Syndicate Mortgage is when several investors collectively fund one single mortgage instrument

    There a re no shares or units that fluctuate in value..( such as mutual funds or segregated funds )

    Every investor has their full face amount registered in their favour at the land registry office with a lien as their collateral.

    A Syndicate Mortgage allows you to use your registered funds or cash to invest like a bank or pension fund and be the lender.

    A Syndicate Mortgage allows you to truly diversity your portfolio.

    A Syndicate Mortgage offers the following superior advantages.

    ➢ Your Investment Is 100% Secured By Prime Real Estate

    ➢ You get a 8% Guaranteed Rate Of Return annually

    Ø Your Interest is paid quarterly

    ➢Profit Sharing of 12% to 14% upon completing of project, over and above the 8% guaranteed return.

    ➢ The Face Amount Of Your Investment Is Fully Registered &Secured Via A Lien against the Property

    ➢ Your investment term is typically18 to 36 months

    ➢ A Syndicate Mortgage is RRSP,RRIF, LIRA, TFSA, RESP Eligible

    ➢ You Become a Private Lender with Your Registered Funds

    ➢ Allows you to Invest In Projects Typically Reserved Only For Large Financial Institutions

    ➢ A Syndicate Mortgage offers 100% Transparency.

    Unlike the 97% who are following an outdated approach to investing, a Syndicate Mortgage allow you to invest like the 3% who understand that true diversification includes investing in Real Estate, not just Stock, Bonds and Mutual Funds.

    Contact me privately for details on current offerings.

    Tyrone Phipps


Leave a Reply

Your email address will not be published. Required fields are marked *