Seasoned stock traders can blanch at the prospect of entering the hedge fund arena, yet they are an important component of a diversified investment portfolio. Reda Bedjaoui, CEO of Redbed Investments LLE and an expert in commodities trading, offers concrete insights that reassure novice hedge fund investors and advises them to conduct due diligence on the contenders. The first step is to collect pitch books, which outline key personnel, portfolio details, and investment strategies. While funds don’t reveal specifics, they will likely follow one of three types of strategies: arbitrage, event-driven, or tactical.
“Arbitrage relies on utilizing derivatives, a variety of exchanges, and other methods to extract profits from inefficiencies in the market,” Bedjaoui explains. “Event-driven strategies leverage occurrences like mergers and acquisitions, utilize ownership positions to restructure companies, or flip profits from distressed securities.”
Hedge funds can employ diverse tactical strategies, but may specialize in short sales, focus on industry-specific stocks, or combine long and short strategies for stocks and futures.
Reda Bedjaoui suggests that would-be investors look for high-performing managers who utilize sustainable strategies. “This avoids the headline-generating implosions that occur when investors chase the bottom line without questioning the behind-the-scenes methods for generating profits,” he notes. “Look for an investment methodology with an acceptable level of risk.” Once an investor has winnowed down the choices, the next step is to examine the hedge funds’ legal documents. Novice investors are encouraged to pay close attention to the description of allowable investment vehicles.
“Some hedge funds have narrow parameters, while others build in flexibility for the hedge fund manager,” Bedjaoui notes. “More flexibility means the potential for greater returns, but it also translates to increased risk.”
According to Reda Bedjaoui, potential investors should also carefully review the documents that outline terms of investment, including information about whether the fund has one or multiple share classes, minimum investments, withdrawal terms, and fees. While both management fees and incentive fees are typical, funds can vary regarding when incentive fees apply. Prior to investing, it is critical to speak with the hedge fund manager, analysts, and operations personnel. It is also appropriate to talk to current or past investors who can provide references for the hedge fund manager. Bedjaoui observes that, although the vetting process can seem daunting,
“With the proper roadmap, even novice investors can enjoy evaluating hedge funds, diversifying their portfolios, and reaping the resulting rewards.”
The CEO of Redbed Investments LLE, Reda Bedjaoui is a recognized thought leader on multi-sector international investing who has spent more than a decade anticipating trends, pricing, and demands in commodities trading. Mr. Bedjaoui’s expertise in futures trading, options trading, and hedge funds has created a demand for his insights among both novice and seasoned investors. His skill in predicting market forces extends to real property, as he solidified his reputation as a sought-after real estate investor and developer by leveraging his instincts and knowledge to direct successful real estate ventures in North America, the United Kingdom, and the Middle East. Mr. Bedjaoui’s business acumen, particularly in relation to start-ups and joint ventures, has resulted in successful enterprises that have spanned sectors ranging from the beverage to the technology industries.
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