Such is their bad press that people think they need millions to invest and they are managed by high-risk gamblers. This is not the case.
High-profile collapses of one or two firms made global headlines but hedge funds are designed not to lose money. Their aim is to make money regardless of market conditions.
It might be surprising to learn that there is a fund already available to UK retail investors doing exactly that. Old Mutual Prosper 80 aims to produce absolute returns in all conditions and offers a protected price equivalent to 80 per cent of the highest ever fund price. It is structured as a mediumrate note which carries built-in protection at 80 per cent of the highest price.
Old Mutual invests in segregated hedge funds and cash to meet its performance target. Since launch in April 2005, it has returned 12.4 per cent compared with a cash return of 9 per cent – well on its way to meeting its objective of cash plus 4 per cent (after fees) over three to five years. It is accessible for a minimum investment of £5,000.
Darius McDermott is managing director at Chelsea Financial Services.