What should I ask before I buy a hedge fund?
1. Who's in charge? Find out who the founders and managers of the fund are, and check their qualifications. What is their background and training? Are they registered? Are you comfortable with their expertise? Are you happy with how they answer your questions?
2. What is the history of the fund? How long has it been up and running? Many new hedge funds are being created by relative newcomers. Some have very little history under their belt. Of course, past performance is no guarantee of how a fund will do in the future. Still, it's important to know the facts.
3. How is the fund manager paid? What is the fee structure? High fees can reduce your return on investment. Make sure you're getting value for the fees you're paying.
4. How often does the fund produce reports for investors? Some hedge funds don?t have to produce reports as frequently as mutual funds. Will you get the kind of information you need to feel comfortable with this investment?
5. What is the fund worth? How does the hedge fund calculate its net asset value (NAV)? You can't compare funds if you don't understand how they get their numbers.
6. Can you get your money out when you want to? Some hedge funds have rules that you can't take your money out for a certain period of time.
7. What investment strategies does the hedge fund use? Hedge funds can be very hard to understand, but don't let that stop you from asking questions. How well can the fund explain its approach and strategy? If you don't understand it, don't buy it.
8. Do you know your rights? If you have a complaint against a hedge fund, a fund manager or any adviser, know where to take your complaint. You can get a list of all the regulators across Canada from the .
Remember: Hedge funds are not for everyone
Make sure you understand the risks and the costs, and get expert advice.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.