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  • Attorneys David Meyer and Matthew Wilson have been selected to the list of Super Lawyers since 2011 and 2015 respectively.

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  • Attorney David Meyerhas been selected to the list of the Best Lawyers in America® for Mass Tort Litigation / Class Actions – Plaintiffs and Professional Malpractice Law – Plaintiffs every year since 2011.

What Is a Hedge Fund?

Hedge funds used to be available for only the wealthiest and most sophisticated investors. But no anymore. Today, just about anybody can invest in hedge funds through so-called “fund of funds” (FOF) and other alternative products that are sold by the nation’s largest brokerage firms.

Webster’s Dictionary defines “hedge” as something that provides protection or defense. Many investors purchase hedge funds with that in mind, thinking that they’re protecting or defending their portfolio from bad markets. Unfortunately, that simply is not true. In fact, hedge funds are often incredibly risky, underperform against the market, and not worth the high cost.

Like mutual funds, a hedge fund is an investment pool that is managed with the goal of achieving positive investment returns. Unlike mutual funds, hedge funds typically have more flexible investment strategies, and use risky tactics like leverage, short selling, and other speculative strategies. In doing this, hedge funds often promise that they can achieve better results with less risk than conventional funds that purchase only stocks. Hedge funds regularly use terms like “low volatility” or “low correlation with the market” to sell that promise to investors.

The reality is very different. In terms of performance, studies have shown repeatedly that hedge funds over promise and under deliver. On top of that, they’re incredibly expensive. Hedge funds typically charge annual fees of 2 percent plus 20 percent of profits. With such exorbitant fees, it’s little wonder why hedge funds often perform so poorly. Moreover, not only do hedge funds engage in risky strategies, they’re also exempt from most federal and state securities laws.

Because of that, hedge funds are not required to follow even the most basic disclosure protections that apply to most other investments. This means that investors are kept in the dark about what they’re invested in and how their investments are performing.

In short, unless you have a lot of money and can afford the risk of losing a substantial portion of your investment, don’t invest in hedge funds. In my opinion, they’re risky, perform poorly, and not worth the cost.

Need More Information?

Investment misconduct can be complex and confusing. That’s why we’re here to help you. Visit our Common Questions page to find in depth answers directly from our attorneys. Get More Answers
Have You Been a Victim of Investment Fraud?

You trusted your financial advisor with your money, but now you're left wondering what went wrong. If you or a loved one suffered losses because of investment misconduct, Meyer Wilson can step in and fight to recover your losses. The team of investment fraud lawyers at the firm has been helping people like you since 1999 by winning judgments, settlements and verdicts worth hundreds of millions of dollars against brokerage firms, financial advisors and banks.

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