Sunday, November 8, 2009

How to Gauge a Hedge Fund: A Guide for Investment Planning

In approaching the task of investment planning, a lot of investors get the impression that a hedge fund will outperform the benchmarks of the marketplace as well as other types of investment funds. Sadly, though, the usual outcome turns out to be exactly the opposite of what had been envisioned.

Instead of beating the overall market, the majority of investors find to their chagrin that their chosen vehicles come to trail behind the yardsticks of the forum by a wide margin. Worse than that, many of the patrons end up losing most or all of their original stakes when the vehicles break down and go bankrupt.

One study after another has shown that roughly half of the heavyweights in the hedge fund game go out of business within five years of their debut in the public limelight. In spite of the appalling figures, though, the findings are in fact conservative estimates of the mortality rate for the entire population of hedge funds.

The reason is that the attrition rate does not take into account the slew of outfits that die a quick death. In that case, the duds never get a chance to enter the big leagues and come into view of the general public.

Many of the tales of woe in the arena could be avoided if the prospective investors were to do their homework in earnest. Even in the case of heavyweights in the arena, some outfits are more rickety than others.

To improve the chance of survival in a brush with hedge funds, the wily investor ought to approach the entire field as well as particular players in a sober fashion. The procedure described below presents a cogent approach to investment planning prior to a foray into the murky realm of hedge funds.

More on How to Gauge a Hedge Fund: A Guide for Investment Planning.

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