Our philosophy for investing in hedge funds is very similar to our philosophy for investing in managed futures (see Commodity Trading Advisors).  The basic premise is to add another asset class to an investor's portfolio that will not only perform well on its own but will also have a degree of non-correlation to the current portfolio.  Ideally, this addition will increase the overall return of a portfolio but, even more importantly, and contrary to conventional wisdom, will actually reduce the volatility and the overall risk in the portfolio.  

The problem with hedge funds is that there is not a good definition of exactly what they are.  In fact, in many cases the term "hedge" has become a misnomer or even an antonym when applied to most hedge funds.  The simplest definition of a hedge fund is an investment partnership where the investment manager is allowed to take a percentage of the profits of the partnership as compensation.  The nature of the investments in these partnerships pretty much runs the gamut of the finical markets, from plain vanilla common stock funds, to emerging market debt, to esoteric derivative strategies.  The other characteristic that is common to most hedge funds is the use of leverage.  This characteristic is the one that has gotten the most press because of the Long Term Capital fiasco and obviously has the most potential to be misused.  In a properly run hedge fund leverage can be a very positive attribute and can actually reduce risk.  For instance, a manager investing in common stocks may be running a 120% long position, but at the same time he is running a 50% short position.  He is employing 170% of his capital but his overall market risk is only 70% (120 - 50) of what it would be if he had all of his money committed to the long side of stocks.

At JTM Investments we spend a lot of time looking at various hedge funds.  Generally, we are not looking for pure equity investors unless they are combined in a fund with other managers of various asset classes or if a client specifically asks for an equity manager (see Equity Money Managers under Securities Services).  What we are attempting to find is money managers who have a unique investment style that is not dependant on the continued appreciation of the stock market to make money.  We want our managers to have been around for a while and to have survived or even profited from the various meltdowns that have hurt many in the hedge fund community.  Because of some unique relationships in the industry we have a wide variety of hedge fund managers to choose from, including some of the most famous managers who are generally not taking any more public money.  In addition to individual hedge fund managers we have access to some funds that combine several managers with very different styles.  For instance, one of the most diversified funds that we have ever offered includes 16 money managers of which one half are futures traders employing various strategies, 5 are primarily equity traders who do every thing from buying distressed securities, to short selling, to plain old value investing, 2 are short term (primarily day traders) of stocks and stock index futures, and the last is a floor trader at the Chicago Board of Options dealing primarily in arbitrage trades between the S&P 500 and 100 indexes.  

The hedge fund arena is one that is fraught with much peril for the average investor but also offers extraordinary rewards for the investor who knows what to look for.  At JTM Investments we are not looking for just the most recent hot track record (the one who leveraged himself 200% and bought all internet stocks at the first of the year).  We are looking for reputable money managers with consistent track records and manageable volatility.  Because most of these limited partnerships are available only to qualified investors we are not able to list them all on our web site.  If you will call or e-mail us we will be glad to discuss the various options with you and if you are interested and qualified mail the offering documents to you.