When it comes to investing in the stock markets there are many investors who love to understand and fall in love with particular companies. They want to know the background of the company, the people in charge, their growth projections and to feel strong about believing the company can be a market leader. They use this data to ascertain whether to purchase stock in a company and to determine how long to hold that stock.

This has been the traditional approach to market investing and the strategy that brokers use when selling themselves to a client. They tout their knowledge and insight of a particular market sector and reveal why they believe certain companies or industries will either thrive or underperform. Investors judge their knowledge and if they think it is adequate they may allow them to make investments and investment recommendations.

What is a Hedge Fund?

Hedge funds take a completely different approach to the stock and other markets and how they manage risk. They have no interest in a particular company or most times a particular market sector. Their expertise lies in being able to read trends in the marketplace and in the stock, commodities, concurrency and derivative markets and respond to those trends quickly and decisively. This is accomplished using sophisticated software programs that monitor thousands of data points and give back feedback about what trades to make. They are clear that their focus is squarely on winning and thereby generating an absolute return for clients.

When an investor invests in a hedge fund their money is put in the hands of near autonomous fund managers who utilize financial company management specialists like Scott Tominaga to manage their highly refined operations. This allows the fund managers to move like lightning and freely change strategies and investments based on up-to-the-second readings of the conditions in the marketplace. They do not like or dislike any companies or investments, they only use them as needed, trading in and out of them often to create profits.

Investors select hedge fund investing for one clear reason; they can deliver some of the best returns for investors.

Getting into a Hedge Fund

The criteria to become a hedge fund investor is stiff. Investors must have at least $1 million net worth, and be able to make an investment with a fund for a minimum time period which is usually three years. For this reason, the majority are institutional investors, who may allocate about 15% of their total investments in hedge funds. Because they have proven their performance over time, hedge funds now attract even the most conservative investors including insurance companies, pension funds, and sovereign wealth funds. Although they only dedicate about 10% of their funds to the industry, their collective amount invested in hedge funds totals trillions of dollars.

The best hedge funds are mostly closed to new investment, but hedge fund managers open new funds allowing investors to participate if they can meet the criteria they set. As they become more successful these fund managers make their criteria more stringent and charge higher fees. Investors are happy to comply as long as the returns are exceptional and consistent.