Alternative Investments: Hedge Funds

Different fund-of-fund structures offer different advantages. The most common structure is that of the unlisted open-ended investment company, which works in exactly the same way as a mutual fund. Dealing is periodic, usually monthly and also usually subject to fees. There may also be limits set on the amount of capital an investor can redeem within any one period.

There are also a few open-ended investment companies that are either listed or have a secondary over-the-counter market in their shares. These are the most "investor friendly" structures because in addition to the periodic dealing, the secondary market improves the fund's liquidity. On the secondary market, investors can buy individual shares at a cost of only a few hundred dollars. The listed funds have the added attraction that they are also regulated by the stock exchange, which provides greater protection for investors.

The third structure, also rare, is that of a listed closed-ended investment companies. These have fixed capital but there is a secondary market in their shares and the benefits of stock exchange regulation.

It is the advent of these fund structures which has started to open access to hedge funds for most investors. However, these structures still do not have the universal recognition of regulators. So, investors may still need to do their homework and shop around. In all cases, the best advice is to seek the assistance of professional intermediaries for the selection of strategies and the allocation to funds.