Is the risk involved in hedge funds more than that in mutual funds or privte equity funds ?

Answer 1

When you think of Mutual Funds (MF) in general, you are usually talking about stocks. And you are talking about a MF that is always "in" the market. There is generally no leverage used in a MF.

A hedge fund could be tading in anything, futures commodities, currencies, and it uses leverage. And with a hedge fund, they can trade both sides of any market, and will often go Short.

If a particular hedge fund trades stocks, they will also trade stock index futures to "hedge" their position, or they may use the futures to leverage their position. And they can be Long or Short.

MF's are regulated by rules of the SEC. Most of their holdings must be invested at all times, they cannot use futures, they cannot hedge, and they cannot go short. They are at the mercy of the market. In this respect, a MF can be more risky than a hedge fund.

Any hedge fund will disclose what they trade in and what they are allowed to do, how they manage risk, and how they use leverage. Many hedge funds merely try to mimick an index, and some use hedging (futures) to limit the downside risk only.

You decide how much risk to take by finding out in advance what the hedge fund invests in. Do not listen to people who say that all hedge funds are risky and wild and can incur staggering losses. There are some wild cowboys out there running hedge funds, but it doesn't mean they all are.

Answer 2

There is considerable risk to hedge funds. They are unregulated which means that they can do about whatever they like. That does not prevent people and institutions pouring money into them however. Everyone wants to get rich quick and the precept is that hedge funds can deliver because they have the ability to make unorthidox speculations.

Mutual funds on the other hand have somewhat limited investment alternatives and also have certain regulations that they have to meet. Whether a particular mutual fund is less risky than a particular hedge fund is open to debate. In general most mutual funds have a pretty dismal record of performance.

I know nothing about private equity funds other than mine. I do try to keep risk to a reasonable level.

Answer 3

a mutual fund is the safest. It will be invested mostly in equities (shares).

a private equity fund will invest in non-listed companies (shares not trading on the stock exchange) and borrow a lot to be able to pay for this. If successful this can pay back awsomely, but the risk of failure is higher, too.

a hedge fund lso borrows, but mainly to invest in shares.

so the answer to your question is: mutual funds safest, followed at some distance by equity hedge funds, and private equity funds not far behind or possibly together. Non-equity hedge funds (say, commodity) can be much, much riskier.

In the recent past a hedge fund specialised in gas prices has, purely and simply, failed, i.e. gone bankrupt, leaving shareholders with nothing.

Answer 4

It depends on the hedge fund. Some are much less risky. Most make concentrated risky bets (using high leverage but hedging away most risks).

Answer 5

I wouldn't entertain hedge funds

Answer 6

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