Hedge funds have become the bogeymen of the investment marketplace. They can conjure bad memories of fraudulent operators like Bernard Madoff of Palm Beach and Arthur Nadel of Sarasota.
But hedge funds also can protect against sudden downturns in the market, an investment expert said Thursday.
If theres a way to protect yourself from this volatility, why shouldnt you do it? said Ricardo Cortez, president of global distribution for Broadmark Asset Management, LLC. Cortez demystified the hedge fund enigma Thursday for The Economic Club of Florida. The audience he reassured dined on green beans, chicken and roast beef in the Tallahassee Civic Center as they learned that hedge funds are becoming more transparent and more secure choices for investors.
In a volatile market capable of plummeting 900 points in a day -- something the Dow Jones Industrial Average did only two weeks ago -- hedge funds function as important addition to an investment portfolio, Cortez said.
Hedge funds are broad, highly exclusive pooled investment agreements that require investors and money managers to share profits while freeing them from certain regulations.
Hedge fund advisers are required to register with the federal Securities and Exchange Commission, but the funds are otherwise free from most federal regulation.
The funds allow investors to put money into stocks and other types of investments that are projected to rise as well as into investments projected to decline, thus hedging against risks to create a balance. Single investors must pay in at least $5 million to join a fund.
Investors and money managers share profits based on the performance of the fund, usually along an 80-20 percent split. Cortez said that investment managers do not have to give a client regular updates on how they are investing their money, but they given a measure of assurance in an unpredictable market.
Hedge funds came into the spotlight when Madoff, a Palm Beach investment manager, was accused of running a Ponzi scheme that cause a reported loss to investors of $50 billion.
But Cortez said what Madoff was doing was clearly illegal and not an actual hedge fund as commonly defined.
Cortez said that investment managers do not have to give their client regular updates on how they are investing their money. Many advisers are now offering regular updates on fund investment and frequent chances to liquidate the hedge funds.
If you balance yourselves and hedge against the risks, thats the way to go, he said.
Other advisers are offering hedge-like investment funds that offer the benefits of hedge funds but few of the risks.
Donald Alford, a retired ear, nose and throat doctor in Tallahassee, said hedge funds strike him as a good way for protecting investments, even if he couldnt take advantage of them.
I dont have the minimum capital, but I like the concept, he said.
Reach Alex Tiegen at atiegen@sunshinestatenews.com or at (561) 329-5389.
