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Types of Hedge Fund Investors
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Types of Hedge Fund Investors Types of Hedge Fund Investors Types of Hedge Fund Investors Types of Hedge Fund Investors



Types of Hedge Fund Investors
Types of Hedge Fund Investors

Types of Hedge Fund Investors

dations are more likely to employ consultants than other types of hedge
fund investors.
Consultants are more sophisticated than the typical hedge fund in-
vestor. Consultants are generally not impressed with high-risk/high-reward
strategies. In general, they focus on funds that deliver consistent, high re-
turns relative to the amount of risk involved with the strategy.
CONCLUSIONS
There are many different types of hedge fund investors with different mo-
tives and risk preferences. These investors have portfolios that respond
differently to market forces. Fortunately, there are many different kinds
of hedge funds. Both the investors and the hedge fund managers are best
served when the investors find the hedge fund that best suits their invest-
ing needs.
QUESTIONS AND PROBLEMS
3.1
Why do individual investors put money in hedge funds, which expose
the returns to ordinary income tax rates (up to 35 percent), much
higher than the long-term capital gain rate of 15 percent?
3.2
Explain why a non-U.S. investor in an offshore hedge fund (perhaps
run by a U.S. manager) should not be liable for U.S. taxes.
3.3 If an offshore fund is located in a country that has little or no tax
on the return of a hedge fund, does the investor enjoy tax-free
returns?
3.4
Why would an offshore investor put money in a fund managed by a
U.S. manager?
3.5
Why would endowments and foundations invest in hedge funds that
are viewed as speculative by many?
3.6
Would it be more prudent for a defined benefit pension plan or a de-
fined contribution pension plan to invest in hedge funds?
3.7
What are some reasons why it might be undesirable for corporations
to invest in hedge funds?
3.8
Why do funds of hedge funds exist, considering the additional fees
that this nested structure creates?
3.9
Suppose a fund of funds invests equally in four hedge funds. The re-
Types of Hedge Fund Investors
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