Financial Planning Chula Vista

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Investing in Hedge Funds, PART 1

Financial planning Chula VistaInvesting in hedge funds is not for all Chula Vista residents. This is not simply a matter of financial advice, but a legal requirement, as spelled out in the Securities Act of 1933. This Act requires that hedge funds may only accept accredited investors, or those with at least $1 million in net worth or $200,000 annual income.

If this hurdle is met, your investor and financial planner must then determine the suitability for an inclusion within the portfolio, ensure that it meets the investor’s objectives and constraints, and conduct sufficient due diligence on the fund manager. Hedge funds can add return to a portfolio while reducing its risk, but these important steps (to be discussed in this three-part series) must be taken first.

Financial Planning for Chula Vista Residents: Hedge Fund Styles

Hedge funds have been described as using skill-based investment strategies. Primarily, returns are driven from a financial planning firm’s competitive advantages in getting investment information or analysis. There are many different investment strategies that are employed by hedge funds. The following strategies are just some of the more popular techniques that hedge funds use to provide superior returns:

  • Global macro: Funds anticipate macroeconomic international events to drive allocation.
  • Equity market neutral (long/short): A strategy that attempts to have reduced or no net exposure to market swings, thereby focusing primarily upon individual stock selection to drive returns.
  • Short only: Investing primarily in stocks believed to decrease in value.
  • Distressed securities: These funds generate returns by identifying companies in financial trouble that they believe will turn around.
  • Event-driven: Investment selection is driven by return associated with a particular event, such as a merger or bankruptcy.
  • Fund of funds: A hedge fund with investments in underlying hedge funds of various styles.

Role in Investment Markets

“Although hedge funds were viewed negatively following the 2008 financial crisis, they play an important role in the functioning of financial markets. Due to their various strategies, they help reduce or eliminate asset mispricing,” explains a Chula Vista financial planner. “These funds also add liquidity to the financial system and provide an important source of risk transfer and diversification.”

On the other hand, their capacity for leverage (borrowing money), the complexity in assessing the risks they present and importance in many markets have made them increasingly risky to financial markets. For this reason, tighter regulations have been discussed to ensure that hedge funds do not pose a significant risk to global economies.

Selection of Hedge Fund Managers

Determining if a hedge fund is an appropriate investment

Determining whether or not investing in a hedge fund is appropriate must include an analysis by an experienced financial planner in Chula Vista based on your particular circumstances, goals and needs. There are particular characteristics of hedge funds that may impact suitability such as time horizon and liquidity constraints.

Liquidity (or cash flow) constraints are of particular importance due to lock-up periods that most hedge funds have. These lock-up periods may allow investment withdrawals only quarterly or even annually. The performance of these investments can be volatile and any Chula Vista resident considering providing this level of capital must be comfortable with that variability. Tax considerations are always important in making any investment decision. Many hedge funds are structured as partnerships and have unique tax issues, something that should be discussed with your financial planner.

To Continue Reading About Investing in Hedge Funds:

Financial Advisor in Carlsbad: Investing in Hedge Funds, PART 2
Wealth Management in Carlsbad: Investing in Hedge Funds, PART 3

Let’s Get Connected!
If you want to get started on your journey today or would like individualized investment/financial advice from LPL financial advisor, John Lohrenz, please contact JKL Wealth Management at:

Phone: (858) 535-1705
Fax: (858) 535-1701
Email: john.lohrenz@lpl.com

Alternatively, fill out the Contact Form and we’ll get back to you shortly.

Physical Address
731 S. Hwy 101, Suite 2K, Solana Beach CA 92075

Securities and Advisory services offered through LPL Financial, a registered investment Advisor. Member FINRA/SIPC.


About Chula Vista, California

Chula Vista – a popular tourist destination in America – is a thriving city in the San Diego metropolitan region and is home to an estimated 243,916 people. The Sweetwater Marsh section of the San Diego Bay Wildlife Refuge is set within Chula Vista and it is a vital space for wildlife. The city also preserves open space regions within its 52,094 total area, making it a beautiful and natural place to live. Chula Vista was once home to a military base, located on the corner of Albany Avenue and Main Street, during WW1 and WW2. One of the main drivers of the economy is tourism, and the many shopping, recreational, dining and tourist attractions available here keep this driver running strong.