Question

Would a market-neutral hedge fund be a good candidate for an investor’s entire retirement portfolio? If not, would there be a role for the hedge fund in the overall portfolio of such an investor?

Answer 1

Market neutral strategy are those types of investment strategy which tries to seek to exploit investment return from certain group of stock while keeping its broad exposure to the market neutral. Hedge funds are appropriate for investors who have high net worth because although hedge funds are able to generate higher funds but higher returns come at high risk and especially for retirement funds, market neutral hedge funds would not be a good candidate. For retirement fund it is important that any investors according to his risk appetite he allocate some portion of his funds to equity and some portion of his funds to fixed income and follow a systematic approaching where as he gets older he is shifting more of his portfolio towards fixed income and high quality stocks. Hedge funds can play an important role for this investor so what he can do is instead of allocating 100% of his retirement funds to market neutral hedge funds he allocates certain portion of his retirement fund depending on his age, his liquidity requirement and his risk appetite. He can consider allocating 10% to 25% of his total retirement portfolio for the hedge, beyond that in my opinion it would be very risky to allocate funds to hedge funds, especially retirement funds.