Being baffled by hedge funds and the like is not unusual, but deciding to invest in funds should not be done blindly. That can be difficult with more than 100 unique specialty finance and loan original platforms available. Through those platforms, loans are used for secured real estate lending, small business credit (equipment financing, merchant cash advances, etc.), unsecured loans and credit, retail installment contracts (RIC’s), education, automotive repair, solar equipment, and more.
For those lending funds for such activities, each type of loan can have very different terms of financing such as how long to pay back, the interest rate to be charged, other terms or fees. Hedge funds often provide financing to private partnership or specific types of joint ventures. They may also lend to institutional investors. There are many other types of investments and lenders.
Investing in hedge funds can offer a way for companies to get larger interest income returns in shorter periods of time. The usual time for investing is under two and a half years and can get a return as high as 20% per annum. That’s a good deal – but the question is always … is it safe?
If your organization wants to start investing some of its liquid assets such as pension benefits for a better return, there is a lot that needs to be considered. Things like segment(s), rate thresholds, appropriate entity structure, duration of assets, lender requirement, tax implications for the entity, and multi-manager or single focus on allocation size.
Don’t move forward until you know what those things mean and how you want to use them for your purposes. And at least in the beginning, you will probably want to look for funds that are managed by people who have a good history and resume in investing, portfolio management, and points you can research about how successful they’ve been in previous and current endeavors.
You should also be aware that different funds have different valuation practices and methodologies. This allows them to overstate performance and returns, so take all information with a grain of salt. If the returns are consistently high, that may mean more is hidden than revealed.
Do not expect to be able to take your investment out ahead of time or without a fair amount of hassle. The funds usually invest for set times, and if a fund manager or investment advisor assures you that you can get out at any time you want without a problem, it may be possible, but get more information before moving forward. One thing you can count on is that there will be a lot of change in this area of investing over the coming years. There will be new products offered, new ideas, and investment ideas may morph into other things. That’s the nature of this business.
Yorkville Advisors are a global investment partner