Hedge Fund DepositsHedge Funds
After researching your potential hedge fund, checking general partner credentials, negotiating terms, and signing contracts, you’re finally ready to deposit money. Hedge Fund deposits will be routed to the fund’s brokerage accounts. It may not be instantly added to their active funds, many managers place your funds into a cash pool until it is needed, but you will still be counted as an investor. Hedge Fund deposits may be added according to a set time line.
Hedge Fund Deposits: Difficulties
The difficulty of the hedge fund deposit process is determined by the similarity in financial service structures between you and the fund. The depositing process is simplified by using the same banks, same brokerages, and same currency as your target fund. It’s easier for a bank or broker to transfer between accounts than wait on transfer between banks or brokerages. Transfers between banks or brokerages may be check or digital, which impact time until completion. Currency conversions may also be required, which carries potential modification of investment returns.
Hedge Fund Deposits: Adding Money
Your initial deposit within a fund does not have to be your only deposit. If general partners need additional money for their strategies, they may allow you to boost your investment. Hedge funds often limit the total amount of money deposited in a fund. If the fund has reached this limit, the answer will usually be no. if the money isn’t needed for strategic purposes, adding unneeded cash usually only reduces returns. Cash drag is the penalty created by low interest rate cash based vehicles. To avoid cash drag, the fund’s general partners simply say no.
Your fund manager may be far away from these limits, or seeking more funds to capitalize on their investment strategy. It never hurts to ask. The best time to let them know you may deposit more money within a fund is at the initial deposit. Be sure to let them know this is based on the fund’s performance. If they need additional funds at some point in the future, they may ask you.
Hedge Fund Deposits: Buy Out Investors
Another way to increase hedge fund deposits is to simply buy out existing investors. This requires the permission of a general partner, but is far more convenient for them. The general partners do not need to command portfolio managers to drain the cash pool for withdrawing investors. They can simply oversee transfer of funds between fund stakeholders and earmark your holdings at a higher number. In this sense, you have “deposited” more money by transferring cash to another investor and claiming their stake in the fund.
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