Following an extended period of declining returns, backlash and redemptions from investors of all kinds, and even closures, the hedge fund industry has seen its reputation change considerably in recent years. While funds of this type have traditionally held a position of respect, as an elite form of investment that is typically open only to the wealthy and which provides stellar returns by outsmarting and outperforming the market, that perception seems to be changing.

Now, hedge funds everywhere have been forced to reexamine their investment strategies, internal organization and the clients with whom they do business. There is even speculation that the future of the industry itself is in jeopardy. So are there reasons that an investor might want to become involved with hedge funds at this point in time? We'll examine a few arguments in favor of hedge fund investment below. (For more, see: Family Investment Offices Are Abandoning Hedge Funds.)

Low Fees

One of the most significant bars to investor accessibility to hedge funds has traditionally been their fees. Hedge funds have generally operated on a "2-and-20" fee model, in which 2% of assets under management and 20% of profits are deducted from investor assets in order to cover hedge fund management and operations. Relative to many other industries, this has generally been a much higher percentage of assets and profit, and that has turned away many investors. The key to the 2-and-20 fee structure was always the continued high performance of hedge funds; so long as returns were outstanding, high fees would not be a problem.

With the recent downturn in hedge fund fortunes, however, many funds are reevaluating their fee structures. Average asset fees are down significantly, with a report by independent monitor Eurekahedge showing that the industry average asset fee is now just 1.39%. Performance fees have fallen in a similar fashion, with the average now at roughly 16.69%. With this shift, it may be more tempting to consider investing in hedge funds. (For more, see also: Why Hedge Funds Might Decide to Reduce Their Fees.)

Shifts in Minimum Investments

Some hedge funds have also considered lowering minimums for investment in the wake of the industry-wide difficulties. While high minimum investment figures were sometimes seen as a barrier to hedge fund investment for all but the wealthy, in today's climate some hedge funds have changed their requirements in an effort to gain more business from new clients. This could be another reason to consider investments in a hedge fund.

In spite of the changes that funds have made to entice investors, it is important to note that the industry has still been facing widespread criticism and negative speculation, particularly regarding continued stagnation in return levels. Those considering investing in hedge funds would be wise to consider the full implications of becoming involved with a branch of the investing world that is so deeply troubled at this point in time.

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