By John Spence
Some investors worried about pricier stock valuations and the Federal Reserve eventually raising interest rates are taking a closer look at hedge funds as a way to navigate a potentially shifting market. However, they may end up paying 2% of assets and 20% of performance for the privilege of investing in hedge funds, which can be a turnoff. Also, many investors are shut out because they can't pony up the minimum investment, which can be $1 million or more for some hedge funds. Yet now, individual investors have more vehicles to get in on the action of hedge funds, which can bet both for and against various investments, The Wall Street Journal reports. "Stocks today are expensive, and hedge funds’ ability to buy stocks, bonds and commodities, as well as bet against overpriced investments, is valued in challenging markets," according to the WSJ article. "If the Federal Reserve begins raising interest rates next year and the market runs into problems, hedge funds might be best positioned to take advantage." Instead of hedge funds, individuals can invest in so-called alternative mutual funds, try to replicate hedge-fund performance with indices of hedge funds, or tap other strategies. The nearly $3 trillion hedge-fund business is also facing pressure that many managers simply don't justify their high fees. "There's some really talented people who do a good job and earn the fees they get, but across the industry there's a lot of funds that charge fees they probably don't deserve," said Simon Lack, founder of investment firm SL Advisors, in a Bloomberg report. Investors in hedge funds on average pay fees of 1.5% of assets, and 18% of profits. "While true uncorrelated active management is more valuable than ever, investors need to make sure they are getting what they pay for," said Howard Wang, in the Bloomberg article. Wang, a former analyst at Ray Dalio's Bridgewater Associates, has launched a hedge fund that doesn't charge a performance fee.