Hedge Funds
Diversify your portfolio with hedge funds
Hedge funds' flexible approach can help improve a portfolio’s performance during market downturns.
At HSBC Asset Management, we employ a multi-strategy approach that filters the hedge fund universe to find what we believe to be the best funds for our clients.
Opportunities offered by hedge funds
- Diversification
Low correlation to traditional long-only assets.
Improved risk return profile by potentially lowering total portfolio volatility. - Flexibility
Well positioned to take advantage of changing market conditions.
Adaptable to the evolution of regulation and prevailing asset class volatility. - Absolute returns
Potentially benefit from both rising and falling prices through short selling.
Access to return streams inaccessible in traditional investments (e.g., special situations or distressed debt investing). - Aligned interests
Typically, the manager's own money is invested ("skin is the game").
Fee structures consist of a management fee and a performance fee.
The value of investing through a multi-manager approach
 Expertise Backed by well-established investment processes and well-resourced, experienced investment teams. |
 Diversification Allows diversification across managers and strategies. |
 Access Aims to offer access to leading hedge fund managers which may be closed to new investors. |
 Scale Investing as part of a large asset base offers the potential for negotiating advantages with hedge funds. |
Investing with HSBC Asset Management
 Philosophy As a people business, identifying talent and |
 Experience Our extensive experience and critical mass can be |
 History We have been selecting and investing in |
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The case for Hedge Funds in the current market environment
Key Risks
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The value of investments and any income from them can go down as well as up
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Regulation
The hedge fund industry is lightly regulated, with the majority of funds domiciled in offshore jurisdictions. Hedge funds are generally classified as “unregulated” and are not typically subject to the same levels of scrutiny and protection as a traditional investment fund. A thorough due diligence process can mitigate these concerns.
Gating
In event that redemptions requests on a particular dealing date are much higher than the normal level and full satisfaction would jeopardise the longer term portfolio balance, a gate or partial execution of redemption requests may be implemented generally on a pro-rata basis.
Side pocket
There may be instances when certain assets in a fund portfolio could become less liquid and the fund manager may segregate these illiquid positions from the main portfolio into a side pocket (or a separate vehicle).
Suspension of redemption
Suspension of redemption is a temporary halt in exiting the fund during a given redemption window. This is a stronger measure than gating because there is no dealing for the fund. This is generally used under special circumstances such as when liquidity conditions have markedly deteriorated in a short period of time or when there are heavy asset outflow such as the loss of a core investor.
Access
Hedge funds operate larger investment minima than traditional investment funds. Investors are often unable to access a hedge fund unless they were willing to invest USD500,000 to USD2m.
Transparency
Many hedge fund managers are wary of regularly publishing their positions in the belief that this will remove any advantage that they have over their peers. This can pose a problem to the investor, as he or she cannot be certain to which stocks, geographies, markets or even strategies he or she will be exposed to when investing in the hedge fund. However, trusted investors who have built strong relationships with the hedge funds can access this information for the majority of funds, enabling thorough monitoring of the investment.
Liquidity
Hedge funds typically have much longer dealing cycles than traditional investment funds. Depending on the strategy being utilised, a hedge fund may only allow subscriptions and redemptions on a monthly or quarterly basis. Furthermore, some hedge funds have long lock-up periods, where an investor is not permitted to redeem from the hedge fund unless a period of 6 months, a year or even 2 years has passed. Some may allow a redemption before the lock-up period is over, but the investor would have to pay a hefty penalty to be able to do this.
Manager failure
Over time, a number of hedge funds will close or fail, due to weak performance or operational difficulties. An investor must take this into consideration before making an investment, seeking professional advice to help minimise the risk of investing in a fund that is likely to fail.
The risk factors listed above are not exhaustive.