How is a Hedge Fund Different from Asset Management?

One of the major functions of wealth management firms is not just to help their customer manage their funds and help them decide where to invest how much, but to also help them by providing various other services. They provide you with asset management and provide you guidance when it comes to dealing with credit management and hedge fund. However, it is important to know that there is a vast difference between the two. Let’s explore that today.

In asset management, the company usually takes a strategic approach in managing assets, strictly confining to the investment portfolio of their client just to ensure good returns. But when it comes to wealth management, there is a stark difference between the two. For wealth management firms, the goal is not just to get good returns, but also expand the clients’ wealth. Whereas in asset management, asset allocation becomes a serious factor and service. It needs to vibe with how much risk you can take, the time horizon and the needs of liquidity with the firm’s investment strategy. As opposed to asset management, the portfolio consists of a meticulously chosen balance of fixed incomes and high risk, high reward investment. Mutual funds, private equities, bonds, real estate etc. are very common when it comes to investment options. When the market changes or your personal goals shift, these management aspects come into picture.

But what is a hedge fund that we talked about earlier? It is a pool investment that utilize the strategies of high-risk investments, hoping that they get exponentially good returns. They are usually of limited liability companies or partnerships and acquire financial assistance of individuals. These individuals are almost always HNIs. This is because, they have better risk bearing capabilities that the lower level investors.

The head fund managers usually approach potential clients with a specific investment strategy that they think would be the best to gain success from the funds. In order to show that they are separate, hedge funds often profess to have a well thought strategy, however, t has been found that most of the time it is a repeat of the same philosophy.

These head funds usually charge high rates, which is why, even though this pool of investment may seem attractive (no matter how risky it is), it comes with a lot of precautions. If you wonder about the fees about these hedge funds, then they are usually two parts to these, the management fee and the incentive fee.