Participants in hedge funds, Financial Management

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Participants in Hedge Funds:

The Sponsor and the Investors

Sponsors are promoters and generally, they hold a profit share on percentage for the capital invested in the Fund. In limited partnerships, they are the general partners and usually receive an allocation of income on the Fund based on performance. General partners also act as intermediaries for investors in Hedge Fund industry. They invest the Fund collected from investors based upon investment strategies to maximize returns.

Generally, investors in Hedge Fund industry are persons or institutions willing to take high risk for high returns. The largest category of investors in Hedge Funds comprises retail and high networth individuals. According to estimates, they contribute about 75 percent of the total assets managed in the Hedge Fund universe. Others who are increasing their investment activities in Hedge Funds are pension funds, endowment funds, fund of Hedge Funds, etc. According to the Securities Exchange Commission (SEC), US guidelines, the minimum level of networth for investment in the Hedge Funds for investors is $1 million. This limit is necessary to qualify them as ‘accredited investor', to participate in Hedge Funds. The limit for investment in Hedge funds for corporations, trusts, and other institutions is $5 million in networth and total assets of $25 million. Percentage of institutional and investors allocating capital to hedge funds for the years 2003 and 2005

 


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