Most funds report their returns from previous years “net of all fees.” This means net of management fees and net of incentive/performance fees. However, don’t assume this; look carefully and if you are not sure, ask. Some funds report gross returns or returns net of management fees but gross of incentive /performance fees. Still others will report audited net of all fees returns with estimated/pre-audited net of all fees performance for the current year’s performance. But regardless of which method is used, almost all funds state that their pre-audit figures are subject to adjustment by the partnership’s auditor after the end of the year. These adjustments are almost always minor. If the adjustments are large, you should look for an awfully good explanation.
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Usually accredited investors may invest IRA or ERISA assets in hedge funds; however, funds are limited in the amount of these assets they may accept. IRA investments in hedge funds make a great deal of sense because of the deferral of taxes on capital gains. The details of this deferral should be discussed with an accountant before making an investment.
Hedge funds have been a mystery to some and thought of as an investment device for the “Rich and Famous.” Aside from the exclusive cachet they have enjoyed, Hedge Funds are in fact the choice of many informed investors and not necessarily the “Rich and Famous.”
What makes hedge funds different, and thus the key to their unique ability to succeed, is their diversity. The variety of hedge fund strategies far exceeds anything offered by a traditional mutual fund or stock broker. The strategies tend to be more niche-like in their approach and frequently, much less dependent upon the market for returns.
Investors also prefer to invest in Hedge Funds because the fund managers have a direct interest in the positive performance of their funds. Hedge fund managers are compensated largely based upon how well they perform and in many cases the fund manager is also one of the key investors in the fund. These are two very strong incentives for the fund managers and possibly why many Hedge Funds will achieve their goals while other investment vehicles may not.
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