Many investors would say that venture capital trusts are lower risk than hedge funds, but they would be wrong. A fund of hedge funds, run by an experienced fund manger who knows how to balance levelsof risk, can be far more predictable than an equity growth fund, let alone a venture capital trust. And that means the Financial Services Authority is quite right to consider making such productsavailable to retail investors.
Hedge funds can be as boring or exciting as an investor wants. Just as unit trusts range from high-risk specialists in Korean small companies to low-risk managed funds with a spread of bonds, property and shares, so hedge funds range from highly borrowed, highly volatile funds to those which can all but guarantee never to lose investors’ money.
Hedge funds generally get a very bad press. In recent years, they have been criticised for poor performance, as the average hedge fund has lagged behind investments such as equities. During the bad years for the stock market, they were attacked for taking too many risks to keep themselves ahead of equities and other instruments. They are criticised by companies for short- termism and distorting stock markets, and attacked for charging excessive fees.
