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Until hedge funds started to become popularized in the late 1990’s we really had a stagnant software market for the sophisticated investor. Since hedge funds tend to push the limits of traditional investing in their pursuit of profits it was a natural extension for them to go looking for new ways to profit and extract alpha or profit.

Over the last fifteen years or so all manner of hedge funds whether they be a global macro trader or a guy doing volatility arbitrage have all built and used more and more sophisticated software and computing power to get more of the ever alluding edge that we all want. Continue reading ‘Hedge Funds, Technology, and the Global Macro Trader’ »

A client has recently asked me if I could “explain what short selling is and how hedge funds use them. I have heard they are highly risky and I also know of concerns that exist about some of their ethical standards.”

Unlike the simple buying of shares where an investor buys them hoping that they will rise, short selling is a tactic used to make money when a share price goes down. If the price does fall the person who has shorted them gains and vice versa.

So is there a problem? Well, many hedge funds operate at an ethical value I am sure. Personally I don’t use anything unless it is fully transparent. If I can’t see why an investment will go up or down I don’t make the investment. If I make a decision that later turns out to be wrong, I want to be able to still say that I would still have made that decision at the time I invested. I don’t want to be kicking myself because I believed noise and because I made an investment without knowing the details back to front.

Unlike the investment in shares, shorting is much less regulated. An investor investing in a share wants it to go up and everyone investing in such shares will want it to go up. This is good for the economy and the strongest shares do well but shorting is a negative approach which has a negative outcome.

Continue reading ‘Collusion in the Investment World’ »

An alternative trading system (“ATS”) that does not publish quotes to the marketplace gets the unfortunate moniker “dark pool”. That label leads some in the investing public to believe that nefarious activities are taking place, when in fact dark liquidity has existed in many forms since the beginning of trading on organized stock exchanges. Indeed, ATSs that do not publish quotes are only one form of “dark” trading that occurs today.

The Securities and Exchange Commission (SEC) is focused on equity market structure, among its many responsibilities. With various rule proposals,as well as a concept release seeking comments on a wide range of market structure topics, the SEC has sought and received input from many market participants from the smallest of retail investors to the largest pension plans and the tiniest of hedge funds to the grandest of money managers, as well as all manner of broker-dealers and other financial intermediaries. The SEC is now synthesizing these comments and considering what new regulation, if any, is appropriate. Continue reading ‘Dark Pools: A Misunderstood Label’ »

Investing in hedge funds is not for everyone. To be eligible to invest in a hedge fund, you must be either an accredited investor or a qualified purchaser. To be an accredited investor you must have a net worth of more than one million, and to be a qualified purchaser you must have five million in investments not including property used for business or primary residence. To be allowed to invest in a hedge fund, the fund must reasonably believe you meet these requirements.

Typically, they require potential investors to fill out a questionnaire that asks questions designed to determine whether or not the requirements are met. In the end, however, eligibility is on the honor system, as not much back up is required for the answers given on the questionnaire. For example, you might have to provide a financial reference, but it is not likely that anyone will ask to see tax returns. Continue reading ‘Investing In Hedge Funds – Who Can Do It?’ »

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Hedge funds are a type of investment that is preferred by individuals looking to get consistent returns rather than dealing with the periodic highs and lows of traditional stocks. These funds are made up of securities or currencies and are sometimes invested in a number of different regions. Understanding the basics of this type of investment can help an individual to make informed decisions. While it is difficult for even inexperienced investor to say with absolute certainty whether or not these funds are the right investment vehicle for a particular individual, they can be profitable if an investor carefully considers the pros and cons of a fund.

It is generally recommended that an investor avoid hedge funds that are managed by a single individual. This person will be able to make decisions regarding investments without needing the prior approval of the fund owners. Hedge funds are generally recommended when they are fully diversified and a fund managed by just one person may not fit this requirement. One of the things that prevent many investors from considering these funds are the typically high investment costs. It is not uncommon for that individuals managing the fund to get bonuses as a large as 20% and they have all of the authority necessary to close a fund at any time. Continue reading ‘Investing in Hedge Funds – Being Conscious of the Risks’ »

What is mutual fund? It is a collection of investment (made possible by many investors) whereby it is managed in a professional manner by experienced money managers. The benefit of such investment is that you can reap the rate of return that comes with it.

Why is mutual fund good for you? Basically, fund managers use the pooled amount of money and spread them across many investment types. Overall, this reduces risks. Your money would not fluctuate much if compared to the stock market.

If you prefer to invest in individual securities yourself, by all means, go ahead. But this often requires experience. For beginning investors, this could be a hard task. Therefore, investing in a mutual fund is the way to go. In fact, when you are investing your hard-earned money into mutual funds, you are actually hiring a professional fund manager for a relatively low cost. Comparing the risks factors and experience, it is sometimes hard to compete with them if you invest in individual securities yourself. Continue reading ‘What Are Mutual, Exchange Traded, Hedge Funds and Managed Accounts?’ »

Whenever Wall Street comes up with a new product it behooves Main Street to be skeptical about the hype. In this article we are going to look under the hood of the latest product to get the UK financial services market in a tizz: the multi-asset fund. Whilst there is nothing new in having a balanced fund of bonds and equities, there are more and more funds being launched that offer access to a broader range of asset classes, including: private equity, commodities, bonds, equities property, and hedge funds. What is also new about these products is the low cost structures that they are being offered in.

Low cost structures have become a reality as the result of consumer demand. After years of being hammered by large fees these have finally come under the microscope as fund values have plummeted. It seems a bit rich to pay someone 3% per annum to manage the dramatic decline of your assets. The advent of Exchange Traded Funds and Exchange Traded Notes are the other driver behind multi-asset funds. Now fund managers can use these listed tools to access a broad range of asset classes. Indeed the Gold ETF is though to have boosted the price in gold as it was formerly quite tricky to invest in without purchasing the physical product. Continue reading ‘Multi Asset Funds – Are They Any Good?’ »