HYBRID VS. HEDGE FUNDS

Hybrids can be thought of as a complement to or replacement for traditional stock and bond portfolios. In addition, the surge in investor interest in absolute return strategies (i.e. focus on making money in most market environments instead of focusing on returns versus a benchmark) has resulted in increased popularity of hedge funds and hedge "fund-of-funds."

However, as many investment advisors know well, hedge fund partnerships are NOT appropriate for many investors. There are many reasons for this:

1. Hedge funds may have high fees (very high compared to mutual funds)
2. Hedge funds typically do not offer easy liquidity (i.e. you can't sell when you want to)
3. Hedge funds often lack transparency (its hard to tell exactly how they are generating returns)
4. Hedge Funds are usually unregistered vehicles (i.e. they are largely unregulated by the SEC, as mutual funds are)

In addition, hedge funds have been "retailized" by Wall Street, so that many investors who seek their attractive features can invest "like big money investors do." However, investors and their advisors are often disappointed when the four factors listed above become apparent.