Elite Investing: Discover Hedge Funds with Low Minimum Investment

One of the common features of hedge funds is that they require a high level of investment. That is the biggest limiting factor to most individual investors. Some funds are even closed off to any investment and they work on invite-only principles. But, in recent years, hedge funds and investment platforms with low minimum investments grew in numbers.

Among the most popular hedge funds and platforms that require low minimum investments are Titan Invest, Hedgeable, CARL, and Yieldstreet. A good alternative that offers low minimal investment is mutual funds and exchange-traded funds. These funds and services offer a wide range of investments. They offer the opportunity to diversify the investment portfolio.

Hedge funds and minimum investment levels were always closely connected. The goal is to minimize the risk both for the company and for the investment. It is also easier to work with a limited group of strong investors. But, today there are ways to start investing small and to learn how to stay with us.

Traditional Minimum Investment Requirements and The Rationale Behind Them

The minimum investment requirements that we know today developed after the stock market crash of 1929. The first major regulation was the Securities Act of 1933. Before it, the sales of securities were primarily controlled by individual state laws.

The Securities Act of 1933 had two primary goals. The first goal of this act was for the investors to receive financial and other important information regarding securities that are offered for public sale. The second intended to prevent and prohibit deceit, misrepresentations, and other fraud in the sale of securities.

The Securities Act of 1933 also imposed minimum requirements for investing in hedge funds. The individual must have a net worth of at least $1 million, or individual annual revenues of $200,000. In case the investor is married this requirement is raised to $300,000.

Besides those hedge funds themselves set minimum investment levels for several reasons:

• Economies of scale. Since hedge funds use several investment strategies they require a certain level of capital to be profitable. If the fund is managing a larger investment pool that can help in lowering the managing cost per unit. Those costs include trading costs, administrative expenses, and research costs
• Level of diversification. One of the key features of hedge funds investing is their ability to diversify investment. To accomplish this, they need to invest in a large number of different markets and securities. To make investments not only diverse but also profitable, they need to be sizeable. That way they can be spread around all different types of investments
• Specific types of investors. Hedge funds are often designated investment companies for high-net individuals or institutional investors. Usually, those investors have a higher understanding of hedge fund investments, how they work, and what are the risks involved. Those investors also have a better chance of handling investment losses
• Hedge fund performance fees. Fund managers and other employees charge a performance fee. It is based on the percentage of the profit that the investment generated. High levels of initial investment guarantee that the investors will be able to cover those fees
• Risk of illiquidity. Illiquidity is the opposite of liquidity. Some hedge funds invest in illiquid investment vehicles. These vehicles cannot be sold easily and exchanged for cash. Also, they will not bring positive returns. In those cases investors need to wait and see will the investment pay off, and when. Those investments are often risky. Only investors with larger initial investments can sustain the possible losses
• Lock-up periods. Once the hedge funds invest the money the investors need to wait until they can withdraw any investment returns. That is called a lock-up period and it can take years. And after that, the investors still cannot reap the success of their investment without limits. That is called redemption, and depending on the fund it can happen annually or a couple times of year. The investor needs to announce that it will withdraw a part of their investment and benefits, and the fund needs to approve it. That way the fund is protecting its investments, because it still needs to have enough securities available. Investors with low amounts of money would not profit from those long waits
• Following investment regulation. Regulatory authorities often regulate the minimum level of direct investments. Hedge funds need to follow these strict regulations
• Risk management. If the hedge fund needs to manage a large number of smaller investors that would be a burden on the administrative end. A larger number of smaller investors would also increase the risk of sudden massive redemption demands. That would harm the fund’s strategy. It could even force the fund to sell illiquid assets.

Hurdle of High Minimum Investments

Hedge funds and their high minimum investment requirement are a turn-off for many potential investors. Although these strict requirements are set for well-grounded reasons, the large pool of possible investors opened other doors.

The development of online trading vehicles and platforms made trading simpler and safer than ever. The stiff competition in other types of funds and investments made hedge funds less attractive than before. That triggered regulatory changes that lowered minimum investments in some hedge funds. That opened a door to potential investors.

All other investors have a wide selection of financial products that they can utilize to invest. Every investor can find the best-suited way to invest, without turning to hedge funds. They can choose between different types of investing strategies depending on their goals.

Evolution Towards Lower Minimum Investments

The Jumpstart Our Business Startup Act (JOBS Act) was enacted to encourage private funding of small U.S. businesses. Its goal is to make the process of raising capital simpler, cheaper, and faster. It also made crowdfunding possible.

The JOBS Act was modified and adjusted several times, allowing more investors to equity capital contributions to private companies. Investments that were possible only for the wealthy became available to almost anyone. Accreditation in some cases now is not mandatory.

Title IV of the JOBS Act, known as Regulation A+ was launched in May 2015. Regulation A+ allows small companies to sell their shares to the general public. That opened a door to startups and crowdfunding platforms to raise money for investments. To do so, the investors do not need to be accredited, like it is demanded for hedge funds.

That was the first step in lowering investment minimums for hedge funds. Other important factors that had an impact on this trend are:

• Technological advancement. The use of online and digital trading platforms has lowered the cost and simplified the administration. That made accepting investors with lower initial investments cheaper and easier to maintain
• The rise in popularity of alternative liquid funds. Exchange-traded funds made using hedge fund strategies more accessible to smaller investors. These funds also offer daily liquidity and lower investment minimums. Today they are a strong competition to classic hedge funds
• Stiff competition and increase in market demand. Today more individuals want to invest than ever before. Investment is recognized as a great way to find a second source of income, or even replace the primary income. These investors found hedge fund strategies compelling. The finance industry found a way to accommodate their needs. Hedge funds had to react so they could keep levels of investment high
• Development of different fund structures like fund-of-funds (FOF). Several hedge funds and investment platforms introduced a new way to invest called fund-of-funds. This way the investors would directly invest in a portfolio of other funds, rather than in securities like bonds and commodities. This is a multi-manager type of investment. The aim of investing in FOFs is to achieve broadly diversified portfolios. The investors also can get broader exposure with reduced risk levels. These investments often have a lower initial investment
• Evolution and diversity of investment options. Those include Robo-Advisors, digital investment platforms, cryptocurrencies, and fintech development. All these factors contributed to the development of new ways to invest that are cheaper and simpler.

Platforms and Hedge Funds Offering Lower Minimum Investments

Specific platforms that are a good alternative to hedge fund investing, with lower minimum investments include CARL, Merrill Lynch, and Citigroup. These professional investors still have high levels of diversification investments and are good options for ordinary investors.

CARL

CARL is a platform that offers a hedge fund type of investing to a higher number of prospective investors. To invest with CARL you still need to qualify as an accredited investor per SEC regulations. They are employing several investment strategies that guarantee properly diversified portfolios. Investors can choose a specific investment strategy:

• Long/short market-neutral commodity strategies
• Long-only equity strategies
• Short-term strategies
• Global macro strategies.

They also have strategies customized in detail, that allow the investor to have a unique type of portfolio. To start investing with CARL all you need to do is to qualify as an investor and install their application. It offers the possibility of a detailed search to make investing easy. Through this app, the investor can always monitor their investment which is of great help to every investor.

CARL also has a well-developed learning center. There the investors can learn from the best. They also host a podcast that in an accessible way addresses serious financial topics.

Merrill Lynch

Merrill Lynch is a well-known and respectable financial services company. They have a tradition that spans more than 100 years, and it has a wide array of financial services. When investing with Merrill Lynch investors receive advice and investment plans from seasoned professionals. The sheer diversity of financial products guarantees investors to find the right way to invest their money.

Potential investors can choose several different ways to invest:

• Merrill guided investing. This is an advanced Robo-advisory platform. Like other Robo-advisors, it is a digital investment service that uses algorithms to create and manage investment portfolios. The investor can base their investment on their risk tolerance and financial goals
• Merrill Edge Self-Directed Accounts. This investment type is a great option for investors who want to manage investments themselves. That way they can create their portfolios to fully accommodate their needs. An investor can open a self-directed brokerage account, and through it buy and sell stocks, bonds, ETFs, and mutual funds
• Merrill Lynch Wealth Management. When choosing this plan the investor will closely work with their dedicated financial advisor. Based on the level of investment it will assess the possibilities to put it to best use. The investor will get a personalized investment plan
• Besides these, Merril Lynch offers retirement accounts, education savings accounts, and managed portfolios.

Depending on the investment vehicle, the minimum investment level varies from low to high starting investments. This grabs the attention of investors who can find a suitable way to invest.

Citigroup

A subsidiary of Citigroup, Citigroup Global Markets Funding plays a crucial role in Citigroup’s global financial operations. They are focused on capital markets, fixed-income trading, and financing solutions. If you decide to invest with Citigroup you can choose different investment plans:

• Brokerage Accounts. These accounts offer a wide array of investing possibilities. Investors can use different types of securities like bonds, stocks, mutual funds, exchange-traded funds, and others. An investor can also choose the type of account, including retirement, joint, or individual accounts
• Citi Self-Invest. This is a self-directed investment platform. It offers commission-free trades and no account minimums for individual general brokerage. This service doesn’t come with a financial advisor, so the investor needs to develop an investment plan by themselves
• Wealth Management. This type of service is reserved for high-net-worth individuals and families. Seasoned financial advisors in consultation with the investor will make a custom investment plan. Investors always have an advisor available for consultations, and advice. Their investment is managed based on their risk tolerance and financial goals
• Mutual funds and ETFs. Citigroup also offers investing through investment vehicles like mutual funds and ETFs. These investments will offer wide diversification of the investments. They carry a slightly higher risk but have the potential for higher returns.

Before deciding to invest it is best to go through detailed consultations with their financial advisors. Their experience can identify the best way for every investor to achieve their maximum investing potential.

Regarding minimum investment amounts they vary. Investing with CARL demands from all investors to qualify. To do so, they have to invest a minimum of $20,000. That is still a low sum when compared to hedge funds.

Merrill Lynch advertises that they have the lowest minimal investment requirements. The requirement to invest in their Robo-advisory platform is $1,000. Other investment vehicles have different starting investments. Some are offered only to wealthy individuals, and others have modest investment minimums. In every case, most investors will find an adequate way to invest with Merrill Lynch.

Citigroup like Merril Lynch offers several ways to invest, and every way has its conditions like minimum investment. The most accessible way to invest is with the City Self Invest option. It requires a minimum of $10,000 to start investing.

Alternative Investment Opportunities

There are several alternatives to hedge fund investment. They carry different levels of risk and use different investment strategies.

Mutual Funds

They are a popular investment vehicle that allows investors to pool their money with other investors. These funds offer investment in different types of securities like bonds, stocks, or money market funds. Mutual funds allow diversified portfolios to the investors, with the possibility of buying or selling shares every day. That means that there are no lock-up periods, and investors can enjoy their returns at any time.

Exchange-traded Funds (ETFs)

ETFs are pooled investment security that is similar to mutual funds. The main difference is that ETFs can be bought or sold on the stock exchange like regular stock. ETFs can be structured in a way to follows the price of an individual commodity or a large and diverse group of securities. It also offers a great possibility to diversify the portfolio. They are passively managed which guarantees fewer management fees. Another plus on their cost-effective side is that they have a lower expense ratio than other types of funds. Like mutual funds, ETFs offer an option for interday trading

Private Equity

This type of investing refers to investments made in private companies that are not offered for sale on publicly traded stock exchanges. These investments are usually conducted by high net gross investors, institutional investors, or private equity firms. What sets this type of investing apart is that the investor often takes an active role in the invested company. Private equity investments are planned for the long term. Private equity can bring substantial returns in case the company develops. But, it can also be a high-risk investment, in case of failure. Before investing in private equity the investor needs to conduct thorough research of the company. It is essential to identify its strong and weak spots

Venture Capital (VC)

VC is a type of private equity investment. It focuses on investing in early-stage and high-growth companies. The investor needs to identify a perspective small-business company that has a high-growth potential. Venture capitalists invest in these companies and in return get equity ownership. Often they play an active role in their business strategy intending to guide their development. Venture capital is a high-risk investment because the company is still young and not fully developed. Their potential can go in both directions, with investors ending up with huge losses. That is why they also need to develop a good exit strategy that will bring them a solid investment return

Private Debt Funds

They are investment vehicles that often financing to private companies, usually in the form of some type of loan or debt. They are a finance source for companies that do not have access to traditional bank loans. They commonly offer higher returns when compared to classic fixed-income investments like bonds. A major downside of investing in debt funds is that the investment is illiquid. That means that you won’t be able to reap any real benefits for a longer period, like several years. Other risks involved with private debt investing are closely connected with high credit risk and lack of transparency

Commodity Trading

This involves buying and selling physical goods that include raw materials, energy resources, and agricultural products. When investing in commodities you need to choose one or more commodities to invest. That also offers a certain degree of diversification. Then you need to choose a method of trade. Commodity trading can be done in futures and spot markets. Futures trading includes buying and selling at a specified time and price. That way you can protect the investment from price fluctuations. A spot market is a commodity trade conducted in the present time and place

Robo-advisors

These modern automated trading services use computer algorithms and software. They are a tool for creating and developing investment portfolios. They have advanced options like automatic balancing and tax optimization. In comparison to high levels of hedge fund minimum investments, robo-advisors have very low or no minimum requirements. One of the benefits of using robo-advisors is their low cost, thanks to automatization. Although this service is automated and does not require human interaction, most companies offer human advisors. This is a great feature if the investor needs investment advice.

Take a Look At Should I Use a Robo-Advisor?:

Managed Accounts

These accounts are owned by the investor but are managed by a professional financial advisor. Financial advisory companies, or asset management companies are typically offering this type of service. This type of investment has a higher level of customization and personalization when compared to the fund type of investing. The investor and the financial companies work together to find the best way to diversify the investments. With managed accounts, investors receive regular periodical reports. The whole process is transparent and strictly regulated.

Benefits and Risks of Lower Minimum Investments

A lower minimum investment opens a door to a larger number of individuals. But, it also generates different benefits and risks.

Benefits of Lower Minimum Investments

• Increased accessibility. Individuals with limited capital are now allowed to invest
• Risk mitigation. Diversification through a lower minimum investment can help to reduce concentration risk in a specific investment. Concentration risk can arise from uneven distribution of exposures to its borrowers or particular sectors, regions, industries, or products
• Impact on liquidity. Lower minimum investments allow easier entry and exit positions when needed
• Risk management. Investing in lower amounts reduces potential loss in case the investment goes bad.

Risks of Lower Minimum Investments

• Reduced diversification. With smaller investments, it can be difficult to form a diverse portfolio. To have a properly diverse portfolio an individual needs to invest substantial amounts of money
• Potential for higher costs. Lower investments usually come with lower fees. But in cases of percentage-based fees, they can be higher for smaller investors
• Limited Professional Management. Larger investors have access to whole teams of analysts and fund managers. Investment vehicles that require lower minimal investments often do not offer any professional support. In some cases, investment companies offer help for a fee.

FAQ

What Is the Minimum Investment in Citadel Hedge Fund?

Citadel LLC is a well-known asset management company that manages several hedge funds.

• Citadel Kensington Global Strategies Fund. This is Citadel’s flagship hedge fund. To invest in this fund an individual must bring between $1 and several million, depending on the shares class
• Citadel Wellington Fund. Like with the Kensington Fund, the minimum investment varies from the class of the share. To invest an individual must offer substantial means ranging in millions of dollars
• Citadel Tactical Trading Fund. This fund can have a lower minimum investment but it is still very high for most potential investors.

Conclusion

Investing has been recognized as a great way to increase and diversify your income. It is often a passive source of income. Capable investors can use their investments as the primary source of funds. However, investing in hedge funds and most investing vehicles often demands a high minimum investment.

The sheer need for developing new and more accessible ways to invest resulted in several options. This competition also had an impact on hedge funds. Some of them lowered their minimum investments, opening the door to potential investors. However, exclusive hedge funds are not harmed by this competition. They will remain a preferred investment option for high-income individuals.