Venture Capital vs Hedge Fund
In understanding the investment word, it is important to note that it has a range of participants, which include institutional investors. Each of these participants has distinct set of skills, which it uses to achieve investment goals. Generally, venture capital firms tend to invest in high-growth companies during their early stages. On the other hand, hedge fund managers make profit by determining the true value of mispriced assets in the market. This essay discusses similarities and differences between venture capital and hedge fund investors.
The first difference is based on the level of professionalism in investing. On a general scale, professional investors include well-established insurance companies, proprietary traders and specialized investment organizations with specific goals. Despite the fact that venture capital firms and hedge fund investors have unique economical functions, they help in the management of large investment funds for investors such as wealthy individuals and pensions. Importantly, the two are important forces in economic circles.
Additionally, there are alternative investments, which a firm can venture into besides the stocks and bond, which you purchase through stock brokerage. Among these are hedge funds and equity investment, which are usually available to certified investors that satisfy the standards set by the U.S. Securities and Exchange Commission. Such investments allow diversification since their functionality is not directly linked to the widely available investments. Essentially, most hedge fund managers align their individual interests to match those of investors. Additionally, compensation is not through commission but this is through an agreed percentage of the returns the funds generate.
In contrast, hedge funds apply a wide range of complex strategies to enhance returns from the funds invested. These approaches may include hedging and financial leveraging. Hedging, as a risk management tactic, seeks to counter likelihood of incurring losses on given investments. Firms do this through option contracts and short selling. A hedge fund can focus on a variety of aspects like equities, bonds, and foreign exchange. It may also focus on products such as gold, oil or corn. In some cases, it could be a combination of two or more of the assets groups available. Moreover, hedge fund managers are allowed to participate in high frequency trading, which uses algorithms, (computerized trading models), in making trading decisions. Alternatively, they can apply their knowledge and experience in the field to realize high profits for their investors.
Venture capital firms focus identifying news companies, which are likely to have higher returns and future growth. Their main focal point is usually technology and online business and endeavor to identify these growing companies as early as possible attain its apex performance with a short period. It is worth noting that venture capital investments take place privately since newly formed companies do not trade on stock exchange markets.
Above all, the investments of a venture capital firm are oftentimes tied up for a certain period before making profit and pay investors. Regarding charges and fees, the size of a hedge fund largely depends on the amount of investments from clients and overall performance in the market. They also charge investors 1-2% levy for asset management and 20% for investment performance. These charges are determined by the Securities and Exchange Commission. Venture
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