Alternative Investment Strategies: Understanding Expected Returns

An alternative investment manager engages in non-traditional investment management activities. The emergence of hedge funds and private wealth management boutiques for high net-worth individuals has brought notoriety to the work of alternative investment managers.

Hedge Fund Advisors

Hedge fund advisors operate on behalf of a limited number of investors. The types of investors that invest in hedge funds should be accredited with an established net worth, investment experience and a strong financial profile.

Hedge funds can give higher returns because they are not subject to the restrictions set forth in securities law, such as the Investment Company Act of 1940. A hedge fund manager is free to use derivatives and other types of “exotic” securities in order to increase portfolio returns. The investors in a hedge fund appreciate this risk so the protections that are afforded customers of mutual funds are not necessary.