High Net Worth Investors seek Hedge Fund diversification Opportunities  

Investors having an appetite for higher risk and higher rewards can find hedge fund investment attractive. Historical data of Credit Suisse find, from 1994 to 2018, the S&P 500 Index outperformed all other strategies, in terms of, average annual growth, but there were some approaches such as the market-neutral which exceeded S&P between the years 1994 to 2009. 

Sometimes, hedge funds can get better than long-only, or buy and hold. Further, these offer the opportunity to diversify. Many institutional buyers seek opportunities in these funds to gain market-beating returns and higher diversification.  

The strategies are highly dependent on markets and the ongoing economic environment but the current situation supports risk-taking. Large buyers often select it to reduce risk but buying in non-equity uncorrelated asset class reduces the overall risk of the portfolio. 

There are multiple risks in such strategies where the long /short are, sometimes, exposed to the risk of a short squeeze, where the short sellers may be compelled to close their positions often at a loss.

Mostly offered as a pool where the allocated capital goes into multiple funds, where the money spent is diversified and one is benefitted by the fund selection expertise and monitoring potential. 

The fee structure o depends on several underlying factors like some pay performance-based fees and others may ask for a predefined fee.  In some conditions, over-diversification can lead to a loss and careful selection of funds can prevent duplicate holdings and deliver market-beating returns.  

The Polychain Capital AUM crash shows the time is not appropriate for the crypto hedge fund industry but some are increasingly seeking hedge fund options, which show they are preparing to handle the situation of recession. 

The October 2018 report by the Crypto Fund Research suggests 600 hedge funds were expecting to enter the market where at least 20 percent were focusing on crypto assets. In 2017, 16 percent of the new hedge funds were dedicated to digital currencies, which was 3 percent in 2016. 

Hedge funds continue to post 5.64 percent return where the S&P 500 was up 13.04 percent in the year-to-date through the end of March, which is one of the best performance in the last ten years as per the report by Barclay Hedge Fund Index, that found the top gainers were in the Healthcare & Biotechnology category, that gained 13.89 percent in the first three months, whereas, the EM Asian Equities delivered 9.64 percent. 

The Asian emerging markets were enthusiastic about US-China trade resolution aspects, and the market overall was positive after the Fed announced holding interest rates. The large managers Citadel returned 6.4 percent. 

As per the JPMorgan Chase & Co. survey, one-third of the investors wanted to increase their allocations in 2019 up from 15 percent in the last year. Such investments provide favorable opportunities in the down market and many categories reduce the overall risks, but the portfolio can be profoundly complex.