Hedge funds are financial partnerships that operate outside of many of the traditional regulatory restrictions that can hamper mutual funds and commonplace investment vehicles. As a result, they have often been off-limits to ordinary investors—both because they typically require six figure or larger minimum investments, but also because the types of investments they are involved in can be highly complex, illiquid, and risky, making them unsuitable for most regular folks.
Still, while direct interaction with hedge funds is still mostly limited to accredited investors, some private equity partnerships that engage in hedge fund-like activity do list themselves on public stock exchanges and can thus be traded by otherwise-excluded participants.
Key Takeaways
- Hedge funds are opaque and loosely regulated investment firms that engage in risky and complex strategies, often using leverage, derivatives, or alternative asset classes.
- As a result, hedge funds are typically off-limits for most ordinary investors.
- There are still ways you can gain access to hedge funds, either through retail-oriented hedge funds or by trading the stock of public investment firms.
Why Go Public?
Going public is an interesting move for a hedge fundsince many attract investors, in part, by touting the lack of disclosures, reports andpublic information. While going public subjects the fund to a greater degree of scrutiny, the portfolios themselves wouldstill be shielded from the investing community—only actual performance and aggregate values need to be disclosed in the annual reports.
A fund that elects to go public can be traded like any other listed security, allowing the investing community to gain exposure to the profits and losses of an otherwise unattainable portfolio. Hedge fund initial public offerings (IPOs)arerare becausemany hedgefundsare simply too volatileto achieve high valuations. This volatility also extends to those who purchase a publicly traded hedge fund security. Additionally, hedge fund managers are not concerned with generating shareholder value through stock appreciation the way a growing company might. Hedge fund managers tend to be focused on one thing: cash returns on their investments.
The Fund of Funds Option
The public can also elect to invest in funds of hedge funds (FoF). As the name suggests, these are built from a portfolio of hedge funds. Most have relatively low minimums and represent a safeway to gain indirect exposure to the hedge fund world. Like any other type of diversified investment vehicle, risks are strategically reduced, but the upside potential is also limited.
Examples of Publicly Traded Hedge Fund Companies
BlackRock (NYSE: BLK) is one of the biggest and respected investment management companies. Based in New York City, BlackRock invests all over the world across all kinds of asset classes and serves private clients from pension funds to corporations and sovereign wealth funds. In addition to managing several traditional mutual funds and ETFs, the company also runs alternative asset portfolios and investments. BlackRock currently has about $22 trillion in assets under management (AUM) with a market capitalization of $106.5 billion.
Blackstone Group (NYSE: BX) (unrelated to BlackRock) is another investment management firm that includes is sizeable alternative investments group, with $618.6 billion in AUM, and caters mainly to high net-worth clients. Invesco (NYSE: IVZ) is similarly situated, with $1.206.5 trillion in AUM with roughly 14% of that dedicated to alternative investments.
Some investment firms are organized more like traditional hedge funds, but still offer shares to the public. Some of these include:
- Sculptor Capital Management (NYSE:SCU)
- KKR & Co. (NYSE: KKR)
- Apollo Global Management (NYSE: APO)
