Investing in hedge funds is a matter of some risk, and it makes sense that wealthier investors with more available funds for investing would be more willing to take that risk.
According to Spectrem’s report Use of Hedge Funds and Private Equity in the Portfolios of the Wealthy, hedge fund investors are compared to investors who do not invest in hedge funds and it was determined that hedge fund investors are far more aggressive in their attitudes toward investment. Forty-two percent of the wealthy investors with a net worth of at least $25 million invest in hedge funds, and 57 percent of those investors consider themselves to be aggressive or most aggressive in terms of risk tolerance.
By comparison, 58 percent of wealthy investors do not invest in hedge funds, and only 33 percent consider themselves aggressive or most aggressive toward investing. Only 5 percent of them placed themselves in the “most aggressive’’ category.
Hedge funds are pooled investments that can use speculative investment strategies – such as leverage and short-selling – to earn a high return. Investors must be accredited with a net worth of at least $1 million, and an earned income of at least $200,000 (with evidence that the income level will be maintained) in order to invest in hedge funds.
Only a small percentage (approximately 10 percent) of wealthy investors plan to increase their investment in hedge funds in the next 12 months, with little difference based on the kind of hedge fund considered. Younger investors (which are those under the age of 55), are more likely to increase their investment, with 23 percent looking for more investment in event driven hedge funds and 15 percent planning greater investment in registered funds or liquid hedge funds.
Professionals (doctors and lawyers, etc.) and corporate executives are more likely than business owners to increase their investments in hedge funds. Nine percent of professionals are going to increase their investment in event-driven hedge funds, and 10 percent of corporate executives are likely to increase their investment in long/short hedge funds.
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