There are many reasons why accredited investors put their money with hedge funds. Here are some of them.
Hedge funds have the ability to short sell products, allowing them to protect/ hedge long positions during market downturns or to profit from them. As such, they are judged by their ability to produce absolute returns regardless of where the market has been heading.
Fund Manager Expertise
Hedge funds are typically run by prominent fund managers with sophisticated investing and trading strategies. Many of these managers have been able to build up their fund assets based of a history of producing good returns.
Due to the hedge fund manager having a significant amount of his personal assets in the fund, the manager is incentivised to produce superior returns for investors.
Many hedge fund strategies involve the use of leverage. This allows for potential superior returns.
The wide variety of hedge funds and their different strategies provides investors with a myriad of investing and trading styles to invest in.
Similar to private equity, the profile of hedge fund investors is that of either an institutional investor or someone who is experienced in the financial markets; in other words, an “Accredited Investor”.