Hedge Fund Tokenization with RDX on Hashgraph.

Hedge funds are privately organised and generally unlisted investment vehicles. They generate investment opportunities that are materially distinct from those ofered by traditional investment vehicles, which are subject to regulations such as restrictions on their use of derivatives and leverage. Hedge funds generally pool the resources of accredited investors and have great flexibility to pursue specific investment strategies to ofer potentially high returns.

There are various reasons for investor interest in hedge funds. First, hedge fund returns can offer low correlations with traditional investments and therefore, serve as a diversifier in a portfolio. Second, hedge funds have a high degree of flexibility which allows them to go both long and short to generate returns.

CHALLENGES OF THE ASSET CLASS

Lack of transparency:

Hedge funds are typically organised as offshore private limited partnerships. They do not need to disclose their activities to the public, meaning they lack transparency. However, hedge funds do release selective information when they need to attract money from new or existing investors.

Non-normal returns:

There is no such thing as a ‘normal’ return from hedge funds. There could be many small gains and a few large profits, or many small gains and a few large losses. To reduce the risk, as measured by returns volatility, an investor would need to diversify across hedge fund managers and strategies.

Limited access:

Hedge funds are accessible only to those with significant capital. Due to the high minimum investment requirement, hedge funds are typically invested in by institutions and high net worth individuals.

Lock-up period:

Many hedge funds lock up investors’ money for relatively long periods. This allows hedge fund managers to establish their strategy and exit investments in an orderly fashion. Lockups are typically for 30-90 days, but some may extend to a year or more.

HOW TOKENISATION ADDRESSES THE CHALLENGES
Greater transparency:

The technology behind tokenisation could increase hedge funds’ transparency. The rights of investors, legal responsibilities, limitations and records of ownership can be embedded directly into tokens.

Better liquidity:

Tokenisation could also improve liquidity for hedge fund investors. Via traditional methods, investors need to apply to the hedge fund manager for a redemption to get back cash. With tokenisation, investors could sell their tokens on secondary markets to liquidate their assets.

Source: RDX India