Hedge funds are private investment pools, typically for high-net-worth (HNW) individuals and institutional investors, that utilize diverse and often complex investment strategies to aim for superior risk-adjusted returns, sometimes through hedging or other speculative bets. [1]

Hedging is a risk management strategy that reduces the potential for financial losses. A hedge should offset or limit the impact of a decline in one investment with another investment that performs differently. Hedge funds allow investors to pool their money and invest in different securities. These attract investors because hedge funds are regulated differently from mutual funds. Hedge funds also generally have more leeway than mutual funds, allowing investors to try other investment strategies.

You need to be an accredited investor to participate in this type of investment, meaning hedge funds are exclusive to those who can meet specific financial requirements, including a minimum income level or net worth. [2] Despite the potential benefits of hedge fund investing, accredited investors may still be interested in other asset classes and investment strategies, such as multifamily real estate investing. Here, we will discuss hedge funds and a few alternative investments worth considering.

WHAT IS A HEDGE FUND?

A hedge fund is a limited partnership between private investors. Professional fund managers oversee their investments using different investment strategies, such as leveraging or trading non-traditional assets, to earn higher returns. [3]

Due to regulatory requirements and minimum investment thresholds, hedge funds are typically exclusive to accredited investors, including retail and institutional investors, as well as high-net-worth (HNW) individuals. However, hedge fund managers have considerable flexibility in their investment approach and can employ sophisticated techniques to generate profits.

Hedge funds are often considered risky because they require a high minimum investment and typically pursue riskier investment strategies such as leveraging and short selling. These actively managed investments can also charge higher fees than conventional investment funds. [3]

Hedge funds are often structured as limited partnerships, with the fund manager serving as the general partner (GP) and investors as limited partners (LPs). This structure gives the fund manager the authority to make investment decisions on behalf of the fund. They also tend to charge a performance fee, known as the “carried interest.” It is a percentage of the fund’s profits paid to hedge fund managers after LPs have received their returns. This fee structure aligns the fund manager’s interests with those of the investors since the manager’s compensation is tied to the fund’s performance. [4]

Hedge funds employ risk management techniques to help mitigate potential losses. They may use portfolio diversification, hedging strategies, or proprietary risk models to manage risk exposure. However, investing in hedge funds carries higher risks and requires a more sophisticated understanding of financial markets than traditional investment options. Additionally, hedge funds’ performance can vary widely, and past performance does not necessarily indicate future results. For more risk-averse investors, it is natural to look for alternative investments.

WHAT TYPES OF ASSETS DO HEDGE FUND MANAGERS USUALLY ACQUIRE FOR INVESTORS?

The four most common types of hedge funds include global macro hedge funds, equity hedge funds, relative value hedge funds, and activist hedge funds.

• Global macro hedge funds are actively managed funds that try to generate profit from broad market swings influenced by economic or political events. Global macro hedge funds have the flexibility to take both long and short positions, allowing them to profit from both rising and falling markets. [3]
• Equity hedge funds primarily invest in long and short equities (stocks and related securities). They involve investing in lucrative public securities while also hedging against equity market downturns by shorting indices or overvalued marketable securities. [3]
• Relative value hedge funds aim to exploit short-term price variances in related securities to leverage spread or price inefficiencies.
• Finally, an activist hedge fund actively invests in companies to increase shareholder value. This may include demanding companies change leadership, restructure assets, or make budget cuts. [3]

Hedge fund managers typically acquire a wide range of assets on behalf of their investors. The assets may vary depending on the hedge fund’s investment strategies. They may acquire equities, bonds, derivatives, commodities, currencies, real estate, private equity, and other alternative investments.

Hedge funds operate with varying strategies and investment philosophies. Therefore, the type of assets hedge fund managers acquire may differ significantly based on the fund’s specialization, risk appetite, and current market conditions. Thus, selecting a hedge fund that aligns with your financial goals and objectives is crucial.

TYPICAL HEDGE FUND PERFORMANCE

Hedge fund performance can vary significantly depending on various factors, including the investment strategies employed, market conditions, and the fund managers’ acumen. It is important to note that hedge funds are private investment vehicles, and their performance data is not as readily available or standardized as that of mutual funds or other publicly traded investments.

Historically, hedge funds have aimed to generate positive returns regardless of the overall market direction by employing long/short equity and arbitrage strategies, among others. These strategies often involve taking long and short positions in different securities or asset classes to capitalize on market inefficiencies or specific events. Hedge fund returns can vary widely from year to year. In some years, hedge funds have outperformed traditional investments; in others, they may underperform. Over the long term, hedge funds have generally targeted higher returns than conventional investments, which can come with increased risk and volatility.

Hedge fund performance is also inconsistent across all funds. Some hedge funds have consistently generated impressive returns over an extended period, while others have struggled to meet expectations. Additionally, external factors such as economic conditions, market volatility, and geopolitical events can impact hedge fund performance. For example, hedge funds may face challenges during market turbulence and experience lower returns or losses.

ALTERNATIVE ASSET CLASSES FOR ACCREDITED INVESTORS

Accredited investors can afford the higher fees and risks of hedge fund investing. They are individuals with an annual income of at least $200,000 (or $300,000 for joint income) or a net worth of at least $1 million (for both individual and joint net worth), excluding the value of their primary residence. 

Even if you are open to participating in hedge funds, pursuing alternative investments could still be ideal for several reasons. For example, you can enjoy a diversified portfolio, which can help mitigate the impact of individual investments, helping you manage risk.

Traditional investment options, such as public securities, may have limited potential returns, especially during periods of low interest rates. Alternative investment strategies like private equity, commodities, and multifamily real estate may offer higher potential returns.

PRIVATE EQUITY

Aside from hedge funds, accredited investors may also be interested in working with private equity firms. Private equity (PE) represents one’s ownership (stake) in a private business. PE comes from firms run by general partners (GPs), also called sponsors. GPs raise capital from limited partners (LPs) or investors. In real estate private equity (REPE), these investors may include pension funds, insurance firms, endowments, family offices, and high-net-worth (HNW) individuals. Typically, the firm will focus on offices, retail, industrial, and multifamily properties. [5]

Investing in real estate private equity (REPE) funds can be risky, but they have historically demonstrated approximate returns of 8% to 10%, with many targeting even higher returns. [5] Some of these risks are related to the fund’s financial structure, general market environment, debt, or liquidity. However, some more commonly encountered risks deal with the property itself. Knowing the history of each resident, having a deep knowledge of property operations, monitoring rent growth opportunities, and disciplined underwriting can effectively minimize property risks. [6]

VENTURE CAPITAL FUNDS

Venture capital firms generally provide capital for startups and small businesses. This is in exchange for a share of company ownership. It involves investing in early-stage or high-growth companies with significant growth potential. [4]

Venture capital (VC) funds enable accredited investors to participate in the innovation and disruption occurring across various industries. While the investment risk for venture capital can be significantly higher, some investors like the possibility of outsized returns.

Venture capital funds aim to generate returns for their investors by investing in companies that grow and become successful, potentially through an initial public offering (IPO) or acquisition. [7]

TANGIBLE ASSETS & COMMODITIES

Some accredited investors invest in valuable art pieces, rare collectibles, or fine wine. The value of art and collectibles can appreciate over time, providing opportunities for capital appreciation. This could be the ideal investment for art collectors and connoisseurs.

Remember that collectible art is a relatively illiquid investment asset, and the costs are typically high. That said, the exclusivity and age of a piece can offset these factors. The works of celebrated artists are particularly profitable. [8]

Alternatively, you may invest in physical goods such as gold, silver, oil, natural gas, agricultural products, and other commodities. These can serve as a hedge against inflation while offering diversification benefits. Of course, investors should understand the risks associated with collectible art and commodities, including the prevalence of counterfeits and the increased risk of destruction to the assets.

EQUITY CROWDFUNDING

Equity crowdfunding is raising funds for a business or project by offering shares or ownership stakes to many investors, typically through an online platform. It enables entrepreneurs and early-stage companies to access a vast pool of investors interested in supporting innovative ventures. [8]

In traditional forms of fundraising, such as venture capital or angel investing, a small group of wealthy individuals or institutions provides funding in exchange for equity in the company. Equity crowdfunding, on the other hand, allows more individuals to invest smaller amounts of money in return for shares in the business.

Investors participating in equity crowdfunding can range from individual retail investors to institutional investors. They invest in the business expecting financial returns, such as dividends and capital appreciation, as the company grows and potentially becomes profitable or goes public through an IPO.

REAL ESTATE

Real estate is considered one of the most accessible alternative investments available to all types of investors, depending on whether the offering is private or public, offering a diversified portfolio and potentially strong cash flow. [8]

There are many ways to participate in real estate investing. Investors may purchase and renovate properties to generate rental income or take a more passive approach through a REIT or REPE.

A real estate investment trust (REIT) is a corporation, trust, or association that directly invests in income-producing real estate. They can be traded on major stock exchanges, except in the case of non-traded REITs. Publicly traded REITs differ from real estate funds in that they regularly distribute dividends, whereas funds provide value through appreciation. Publicly traded REITs allow investors to put money into various real estate holdings without the hassle of property management. However, you need to remember that you are investing in the REIT itself and, therefore, have no say in the types of real estate properties they invest in. [9]

As previously mentioned, a real estate private equity (REPE) fund is a real estate deal in which multiple investors pool their money to purchase, develop, operate, value-add, and sell properties to generate returns for investors. The investors are led by a general partner (i.e., sponsor), responsible for finding and acquiring the property, executing the business plan, and managing operations after the purchase. REPEs offer a potentially reliable source of income because people will always need a place to live. Even if one or two units in a property become vacant, several occupied units can still generate a profit. This is unlike single-family homes, which often become empty and cease producing income when the resident moves out.

Regardless of the alternative investment strategy, you must carefully evaluate each opportunity, conduct thorough due diligence, and consider consulting with financial professionals or advisors before making investment decisions.

WORK WITH BAM CAPITAL FOR MULTIFAMILY PRIVATE PLACEMENT DEALS

Accredited investors seeking an alternative to hedge funds may consider multifamily private placements. This type of REPE firm involves funds where multiple investors pool their money to buy a property, usually an apartment building. The investors can then benefit from passive income.

Passive investors in multifamily real estate refer to limited partners whose liability is limited to their investment amount. They do not actively participate in renovation, construction, property management, or acquisition labor. If you are interested in this type of real estate investment, consider partnering with a reliable sponsor who has a proven track record of success.

BAM Capital partners with accredited investors who want to enjoy passive income and all the other benefits of multifamily private placement. As the private equity arm of The BAM Companies, BAM Capital has been focusing on buying assets targeted as having strong profitability potential and staying disciplined in its investment thesis. BAM Capital’s investment strategy aims to create forced appreciation while helping to mitigate investor risk. To date, BAM Capital has successfully managed over $1.7 billion in assets across ~9,000 apartment units.

For additional multifamily real estate insights, visit Pathways to Passive Wealth, BAM Capital’s new platform designed to make real estate investing more accessible, transparent, and achievable for aspiring and experienced investors.

Remember that no investment is risk-free. Before making financial decisions, consult your investment advisor and schedule a call with a BAM Capital investment team member.

Disclaimer: All investments carry risk, including potential loss of capital. This content is for informational purposes only and is not financial, legal, or investment advice, nor an offer or solicitation to buy or sell any security. Consult an independent advisor for personalized guidance and contact BAM Capital for details on current offerings. BAM Capital and its representatives are not fiduciaries or investment advisors. Tax laws are subject to change. The information provided is general and may not reflect individual financial goals. Any financial terms, projections, or forward-looking statements contained herein are hypothetical in nature and should not be interpreted as guarantees of future performance or safety. Such statements reflect BAM Capital’s opinion and are subject to market fluctuations, economic conditions, and investment risks. Past performance does not predict future results. BAM Capital and its affiliates do not guarantee the accuracy or completeness of this information. BAM Capital offers investment opportunities under Rule 506(c) of Regulation D exclusively for accredited investors as defined by the SEC. Verification of accredited investor status is required prior to participating in any investment.

© 2025 BAM Capital. All rights reserved.

SOURCES:

[1]: Google Generative AI. (2025). “What are hedge funds?” https://www.google.com/search?q=WHAT+ARE+HEDGE+FUNDS

[2]: Investor.gov. (n.d.). “Hedge Funds.” https://www.investor.gov/introduction-investing/investing-basics/investment-products/private-investment-funds/hedge-funds

[3]: Investopedia. (2024). “Hedge Fund: Definition, Examples, Types, and Strategies.” https://www.investopedia.com/terms/h/hedgefund.asp

[4]: Investopedia. (2024). “Carried Interest Explained: Who It Benefits and How it Works.” https://www.investopedia.com/terms/c/carriedinterest.asp

[5]: Investopedia. (27 March 2022). “Private Equity Real Estate: Definition in Investing and Returns.” https://www.investopedia.com/terms/p/private-equity-real-estate.asp

[6]: Smartland. (19 May 2021). “Top 10 Risks to Consider Before Investing in Private Equity Real Estate.” https://smartland.com/resources/private-equity-risks/

[7]: Google Generative AI. (2025). “What are venture capital funds?” https://www.google.com/search?q=what+are+venture+capital+funds

[8]: Vinovest. (n.d.). “Alternative investments for accredited investors.” https://www.vinovest.co/blog/alternative-investments-for-accredited-investors

[9]: Blue Lake Capital. (2025). “Multifamily Syndication Vs REITs: What’s The Difference?” https://www.bluelake-capital.com/post/the-difference-between-a-reit-and-multifamily-syndication

[10]: BAM Capital. (2025). “Current portfolio.” https://bamcapital.com/