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Hedge funds are lightly regulated private investment funds that use unconventional investment strategies and tax shelters in an attempt to make extraordinary returns in any market. Typically, these funds are structured as limited partnerships and limit investment to business or institutional investors. These factors have given them a secretive and shady aura in the financial community; however, SEC rules and regulations make it possible for anyone to take a glimpse into their activities. This article will explore how savvy individual investors can profit off of some of Wall Street's most ruthless hedge funds. (For related reading, see A Brief History Of The Hedge Fund.)
Step 1: Find a Hedge Fund to Watch
Most hedge funds invest using unconventional strategies, but others take a more active role in realizing the value in their investments - these are known as activist hedge funds. Activist hedge funds not only engage the company's board and management in discussion, but also wage proxy battles, liquidate assets and even force sales of companies. These activities can provide opportunities to savvy individual investors willing to do a little digging!Those who have spent some time in the marketplace may be familiar with many of the activist hedge funds out there. Some funds are very public when fighting management, while others are extremely quiet about their activities. (For more insight, see Introduction To Hedge Funds - Part 1 and Part 2.)Step 2: Tracking Hedge Funds
Hedge funds may be mysterious on the surface; however, the U.S. Securities and Exchange Commission (SEC) mandates a certain level of transparency - particularly when activist hedge funds are involved. It's through these SEC filings that we can get a glimpse into the actions being taken by activist hedge funds.
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