Have you seen all those big full page ads for hedge funds in the Wall Street Journal, the Financial Times, Investors Business Daily? You haven't. Maybe they are being drowned out by the regular mutual funds who continually tell you how great they are.
Shucks! I forgot. Hedge funds are not allowed to advertise. I wonder why. Maybe they think that their potential customers are too dumb to know that hedge funds are a poor investment. Could be. The Securities and Exchange Commission is trying to protect investors ? I think?
To be able to buy into a hedge fund the smallest investor must have a net worth of $1,000,000 and an income of more than $200,000 per year. Maybe the SEC doesn't think these folks are bright enough to know a good thing when they see it.
There are other groups that are major investors with the hedge funds. Literally billions of dollars are invested by university endowments, charitable trusts, state and corporate pension plans. Could it be that they have a better return than regular mutual funds? Naw! The media would tell you wouldn't they?
The media is there to report the facts. It is hard to believe that just because a large portion of their income is from advertising revenues of mutual funds that they would be lax about this.
If you were a fund manager and your fund was under performing and it was reported in the local paper, TV, or radio would you pay them to carry your advertising? You sure would not want to be compared with performance of a hedge fund.
What is it that makes the difference of a standard mutual fund with a hedge fund? Why does the smart money gravitate to them? One word. Performance. A regular hedge fund manager is paid on HOW MUCH money he has in his fund and not on how much he makes for the investor. The hedge fund manager is paid a percentage of the PROFITS he makes for the investors. No profit means no bonus so he better do the job or he will be out of a job. Smart money moves. It moves to where the profit is being made.
The SEC will not allow standard mutual fund managers to be compensated in this manner. Their claim is that it will be too dangerous for the small investor. Hog wash! If a fund is losing money the little guy should be selling his current funds like the smart money and finding a better performing fund. None of the media recommend this to the little guy.
My guess is there are enough intelligent fund managers who would like to be paid for performance and would set up no-load funds to attract investors. The SEC seems to think more of the funds than they do of the smaller investors.
It is a shame you can't check the advertising claims of standard mutual funds against the returns of hedge funds.
Copyright 2005
Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.
Copyright 2005
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