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What is a hedge fund?
In simple terms, a hedge fund is a fund formed by a group of private investors, who join together to invest in a particular set of stock, with the aim of generating a return on their investment over a set period, regardless of how the market performs.
To do this, a hedge fund manager will operate using a set of complex financial models, sophisticated trading techniques, and modern risk management tools – such as short selling – to mitigate market risks while monetizing and promoting asset growth across a variety of different classes and markets.
What are the benefits of hedge fund management?
When it comes to hedge fund management, investment potential and monetisation is not driven by the performance of the hedge fund directly. Instead, a hedge fund’s effectiveness is based on how effectively a fund’s ongoing performance is monetised by its hedge fund manager.
Such methods of monetisation have the potential to forge larger returns on your investments compared to other investment models, while also providing you with additional investment benefits, such as:
- Enhanced returns: Incorporating hedge funds into your portfolio can refine its risk-return dynamics, as hedge fund managers can capitalise on both upward and downward market trends. Such versatility provides unique return opportunities not typically available through traditional investments.
- Portfolio diversification: Hedge funds provide a broader spectrum of investment strategies for clients compared to those offered in a traditional portfolio. This allows for a layer of diversified returns, especially in scenarios surrounding rising interest rates. With the active management approach favoured by hedge funds, expert hedge fund managers are able to exploit market volatilities and reduced correlations.
- Access to expertise: Hedge funds can give investors direct access to skilled and active managers. Like hedge fund managers, these Portfolio Manager's interests are aligned with their clients, as a substantial amount of the manager’s own money is typically invested in the sophisticated strategies hedge funds operate within.
- Alignment of interests: A distinctive feature of hedge funds is the significant level of personal investment each hedge fund manager has in their funds. This ensures a strong alignment of interests between them and the fund’s investors. Furthermore, the dual fee structure used by hedge funds – comprising both a management fee and a performance fee – motivates hedge fund managers to strive for positive returns by directly linking their compensation to the fund’s performance.
An introduction to hedge funds
Join Emma Cory, our Alternatives Specialist, and Julian Romero, Head of Institutional Portfolio Management, as they explore the Hedge Funds asset class. Gain new insights for your investment strategy as our experts guide you through an introduction to hedge funds, how they work, and why they could be a valuable addition to your investment portfolio.
Hedge fund management with HSBC
Alongside the aforementioned benefits that come with standard hedge fund investment opportunities; by choosing to invest in hedge fund management with HSBC Private Bank, you’ll get access to all of the following:
- Vast experience: At HSBC, our client-centric approach, combined with our rich experience and deep insights into hedge fund management services has cemented our reputation as a popular hedge fund investment provider worldwide.
- Strong industry relationships: Our longstanding relationships with leading hedge funds worldwide enables us to leverage these relationships for enhanced manager engagement on our esteemed platform, fostering greater transparency and deeper insights through the entire hedge fund process.
- Global investment framework: Our comprehensive global investment infrastructure ensures the implementation of rigorous governance and extensive risk oversight across all invested hedge funds and client portfolios – including both blended and customised funds.
- Industry recognition: With vast experience and a proven track record, we operate amongst the largest hedge fund investors globally and have received numerous industry awards for our work.
- Investment philosophy: We’re firm believers that all markets contain inefficiencies, which can be exploited by hedge fund managers who exhibit the skills necessary to deliver excess returns. We identify such talent through our global, dynamic, and proven research process, to bring in talented hedge fund managers to run your accounts.
Additional HSBC benefits
- Infrastructure
HSBC lowers the barrier to entry for institutional investors through its platform, providing access to exclusive institutional share classes at lower minimum investments.
- Leverage
Gain an edge with the substantial leverage opportunities HSBC offers on investments in hedge funds, enhancing your potential returns.
- Secondary market access
Take advantage of HSBC's vast internal market to tap into otherwise inaccessible hard/soft closed funds, a privilege made possible by our bank's extensive size and reach.
- HSBC network
Benefit from early access to sought-after, capacity-limited hedge funds, thanks to the HSBC Group being one of the largest global investors in the hedge fund sector.
- Consistent performance
Operating since 1989, our track record stands as a testament to our expertise and commitment to our clients.
- Execution
HSBC's global trading teams are equipped to promptly execute trades, ensuring you can move swiftly to capitalize on market opportunities.
Our hedge fund offering
We pride ourselves on our expansive hedge fund platform, offering a comprehensive range of options tailored to our client's unique investment preferences, knowledge, and needs.
Whether through our diversified fund of funds, bespoke single-line solutions, or custom mandates, our team is dedicated to collaboratively identifying the optimal investment strategies for our clients.
To learn more about our hedge fund product suite, or details about our other wealth management strategies, please reach out to your Relationship Manager, who will be happy to help.