Taking care of your hard-earned funds is a top priority. While banks used to be a first port of call, banking institutions are exposed to multiple risks from liquidity to operational issues. And with banks such as Merrill Lynch, which was acquired by the Bank of America, and Lehman Brothers facing bankruptcy issues, it can force investors to look for a different solution.
Open-ended funds offer an effective alternative for investors looking to grow their funds over the medium to long term. Here’s how.
Any investor worth their salt will tell you that the way to ensure best returns is to minimise risk. When you invest in a multi-strategy open-ended hedge fund, you are investing in a basket of assets, such that your portfolio is diversified. This means that even if one asset is underperforming, the risk will be mitigated due to the other uncorrelated assets in the basket.
These funds are managed by skilled and experienced fund managers. Their responsibility is to constantly monitor and track the investments to ensure good returns for investors. They use advanced technological tools to analyse risk, identify opportunities and keep track of performance. So, investors do not require in-depth knowledge of the financial markets. And they don’t need to put in time and effort to ensure that their investment is doing well.
Not only do multi-strategy, open-ended funds offer convenience, they also ensure transparency. No longer do investors need to scour a huge pile of physical reports or sit with their financial advisors for hours to understand investment performance. Today, technology offers advanced reporting abilities. This provides investors with an abundance of information and eases the process of tracking investments, without the need to be either financially or tech savvy. In fact, financial service providers are using technology solutions to offer personalised experiences to their clients, tailoring the whole process of investing to suit consumer needs.
This occurs at times when the institution witnesses lower than expected profits or experiences a loss in its business. The best way to minimise business risk is to be flexible with business strategies and quickly adapted to changing market conditions. However, banks have never been known to be agile or flexible. The banks that collapsed during the 2008-2009 crisis were ones that didn’t have adequate risk management measures in place.
This is one of the biggest advantages of investing in hedge funds. Top hedge funds use quantitative fund management techniques to ensure disciplined investing, based on strong quantitative analysis. This takes care of the possibility of human emotions influencing investment decisions. In addition, systematic investing is an effective way to ensure efficient risk management through in-depth analysis of the complex global financial markets. A well-chosen mix of technology-based investment strategies also helps to achieve stable performance for the funds.
Open-ended funds tend to be highly liquid, allowing investors to make withdrawals as and when they are in need of urgent cash. In addition, to remain compliant with the stringent regulatory frameworks, such as MiFID II, the funds are never over-leveraged. Moreover, they keep higher cash reserves than banks usually do.
With the use of technological solutions, open-ended funds have been able to provide investors with a consistent performance year after year. In fact, even during the global recession of 2008-09, some hedge funds continued to provide returns, while banking giants all over the world were struggling. All those facts are making the modern investor question whether he should still park his hard-earned money in a bank savings account.