To make it easier for you to prepare meeting materials, we’ve developed these slides on how to educate clients about the myths of hedge funds. The presentation is in a Word file to make it simpler to customize content to meet your clients’ information needs.
Enjoy, and we hope this offering helps enhance your client meetings.
Perceptions of hedge funds are often coloured by myths.
Here are four of the most common.
Myth 1: Hedge funds are risky and highly leveraged
Hedging is actually a strategy used to guard against the risk of loss.
The perception of hedge funds as riskier than traditional investment vehicles is incorrect.
In fact, the traditional, long-only approach to investing is unable to handle the risk of market downturns.
Hedge funds, on the other hand, use a wide range of tools to execute advanced investing and trading strategies (such as the ability to go long or short).
Use of leverage, which is typically controlled and monitored by a hedge fund’s prime broker, is minimized to protect the broader portfolio.
Myth 2: Hedge funds have high fees
The underlying philosophy of the hedge fund industry is that the skill of the manager should drive the performance of the fund.
Traditional investment funds (e.g., mutual funds) typically charge a flat fee for active management regardless of performance.
Hedge fund managers often derive a substantial portion of their fees when the investor sees a positive return.
As industry best practice, hedge fund managers generally show their products’ historical performance net of fees and expenses.