Hedge Funds still a risky investment

Investors Business Daily – Are hedge funds now investments for the masses? Not so fast.

Long reserved for the ultra-rich and the institutional investor, these private and risky investments have grown explosively in the past few years, in part because it’s become much easier for the typically wealthy investor to participate.

Since 2000, the number of such funds has doubled to more than 8,600 with total assets now $1.1 trillion, according to Hedge Fund Research Inc. of Chicago. That’s the same ballpark as the mutual fund total.

Many hedge funds have lowered their minimum investments from $1 million or more to $100,000 or even $25,000. And to lower risks, banks and brokers are selling so-called funds of funds — essentially mutual funds made up of hedge funds. Meanwhile, new government rules have introduced an element of oversight into a previously unregulated field.

All this appears to make hedge funds, which pursue spectacular returns through tactics off limits to mutual funds, like short-selling and heavily leveraged buying, a tempting gamble for the investing public.

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