Page 215 - A Canuck's Guide to Financial Literacy 2020

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▪ High Fees

Hedge funds aim to generate positive return regardless of the market direction.
They will use various types of investment strategies to do so and if successful,
the fund managers will get compensated in the form of a performance fee. If the
hedge fund generates returns above a certain percentage, known as the hurdle
rate, it would start charging a performance fee.
▪ Illiquid

Hedge funds limit their investors in how often they’re able to withdraw money
out. They may have lock up periods that can extend for up to two years. Be
aware of any lock up period before investing in a hedge fund.

▪ Lack of Regulations

Unlike mutual funds, hedge funds are not regulated to the same extent. A fund
manager is not going to disclose the type of investment strategies that they’re
pursuing or their top 10 holding. If a hedge fund were to go bankrupt, there is no
regulatory body that would provide you with financial relief.