New hedge funds are launched daily, which is constantly increasing the importance of determining which hedge funds are appropriate for you or your firm to invest in becomes increasingly important. Every person or company is going to have different investment horizons, risk tolerances, strategy preferences, etc. so it is usually more valuable to know the basics of how to evaluate a hedge fund then it is to hear someone say which hedge funds are “the best.” I think giving hedge fund recommendations even to the degree of suggesting exactly how to evaluate a hedge fund is too close to finance advice to put online but the SEC website does provide this advice in conducting a minimum level of hedge fund due diligence before investing:
- Read a fund’s prospectus or offering memorandum and related materials
- Understand how a fund’s assets are valued
- Ask questions about fees
- Understand any limitations on your right to redeem your shares
- Research the backgrounds of hedge fund managers
- Don’t be afraid to ask questions
Richard Wilson is a hedge fund consultant, founder of the Hedge Fund Group (HFG) and runs the Hedge Fund Consultants Blog.
