Interval funds can hold these alternative, riskier investments, and engage in more aggressive investment techniques, but must maintain more diversity among the underlying investments than a pure private or hedge fund. Illiquid investments such as real estate may be held, but the percentage of the portfolio in any one investment is restricted, and the interval fund must demonstrate its ability to create liquidity on the redemption cycles stated in the prospectus. So, in many ways the structure is a hybrid. The returns may not be as great, but the diversity of securities and requirement to offer liquidity makes them more secure.
How Hedge Funs Use Leverage
One of the most popular strategies used by hedge fund managers is the use of leverage to achieve significant gains. This means that the manager will borrow money to increase the holdings of the fund to invest in things that offer a high rate of return that will not only cover the borrowed money, but also offer a substantial return as well. This strategy risky is because if the investment does not go as planned the fund may not have the money to pay back the cash it borrowed, causing the fund to fail.
