Funds of Hedge Funds (FoHFs)
Funds of Hedge Funds (FoHFs) may be an effective way to access a variety of hedge fund strategies for a relatively modest investment. A registered FoHF seeks to blend various strategies and asset classes. They are designed to create more stable, long-term investment returns than those of any individual hedge fund.
In general, FoHFs seek to deliver more consistent returns than stock portfolios, mutual funds or individual hedge funds. At the same time, they try to provide access to a broad range of investment styles, strategies and hedge fund managers.
It is important to understand the differences between hedge fund strategies because all hedge funds are not the same. Investment returns, volatility and risk may vary among hedge fund strategies. Hedge fund investing involves a variety of risks and is only suitable for accredited investors who can afford a loss of all, or a portion, of their investment.
Regulations require that FoHF investing is limited to accredited investors. This includes:
- Investors with $1 million net worth (excluding home, auto and other personal possessions); or
- Investors who have had a $200,000 individual income or $300,000 joint income for the past two years (and who have reasonable expectations to maintain that income level)
How can a FoHF help you?
FoHFs attempt to reduce risk by incorporating a diverse range of hedge fund strategies into a single investment vehicle similar to a mutual fund. Diversification can be an effective way to reduce risk in your portfolio by allocating assets among various investments and investment managers. Compared with investing in a single investment strategy, a FoHF may help reduce overall investment risk while providing access to various market opportunities.
Diversification does not guarantee against loss or guarantee a profit. It is strictly a method to help manage risk.
A registered Fund of Hedge Funds prospectus describes the various risks related to an investment in the registered fund of hedge funds and its operations. You should read the prospectus carefully to determine whether an investment is suitable for you in light of, among other things, your financial situation, need for liquidity, tax situation and other investments. Hedge fund investing involves a variety of significant risks and is only suitable for accredited investors who can afford a loss of all or a portion of their investment. This does not constitute an offer to sell or solicitation to invest in any fund.
The funds may invest in foreign securities, which involve the risks of currency fluctuation, different account standards, and political instability.
Positions held in the funds may be illiquid and the fund managers may have difficulty closing out positions.
Hedging techniques employed may accelerate the velocity of potential losses.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC.
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