A fund that can go long or short stocks, hence the hedge connotation. But it's is different from a regular fund in the way its managers are compensated. Regular money managers get a percentage of the assets. Hedge fund managers get a percentage of the assets and take 20% of the gains, both realized and unrealized.
A fund which is allowed to use aggressive strategies that are unavailable to mutual funds, including selling short, leverage, program trading, swaps, arbitrage, and derivatives. Used generally by wealthy individuals and institutions, hedge funds are restricted by law to no more than 100 investors per fund, and as a result most hedge funds set extremely high minimum investment amounts (ranging anywhere from $250,000 to over $1 million). Investors in hedge funds pay a management fee as well as a percentage of the profits (usually 20%).
These are funds usually used by wealthy private investor or institutions. Hedge funds are restricted by law to no more than 100 investors; the minimum contribution is typically $1m! The first hedge fund started in New York on 1 January 1949. Hedge fund managers sell stock short and trade in options of the shares they hold.
Specialist funds that take positions using credit or borrowed capital. Managers often invest in liquid instruments, such as currency and interest rate derivatives, with the aim of making profits from movements in foreign-exchange or bond markets. Hedge funds are increasingly big clients for our collateralised finance business.
Funds which have the ability to "gear" portfolios by borrowing to increase their exposure to underlying stockmarkets. This method increases risk as well as the potential for gain. Another way to "gear" portfolios is to offset stockmarket exposure by "short" selling (selling stocks not owned in the hope of buying them back more cheaply at a later date). Yet another way is to cover the equity position with derivative instruments, normally stock or stockmarket options or futures. These last two strategies have less risk, but are not immune to losses or lost opportunities.
Largely unregulated and privately managed investment funds that use aggressive financial strategies prohibited to mutual funds. They are mostly registered in offshore tax havens although the people running them tend to operate out of London, New York and Geneva. In 2002 the IMF estimated the number of hedge funds at 2,500-3,000, managing $200-$300 billion in capital and total assets of US$1000 billion.
Hedge funds are speculative funds which make large bets on market movements. They utilize borrowed money to substantially leverage their returns (and losses), often at a factor of ten to one, or more. They purchase exotic securities and also take substantial short positions when they think the market or a particular sector of the market will go down. Such funds are extremely risky and are suitable for high-wealth investors only.
Hedge Funds target to generate long-term positive returns independently of major market cycles. For this purpose various investment instruments and strategies can be used with large degrees of freedom, e.g. all types of securities, derivates as well as short sales and leverage. Because of the performance fee based compensation structure the Hedge Fund Managers benefit more from a positive performance than from pure asset growth. This factor and the fact that they invest own assets into the fund alongside other investors should ensure alignment of interest. The typical investment vehicles through which investments into Hedge Funds can be made are separately managed accounts, so-called Limited Partnerships in the US as well as Off-shore Funds for investors outside of the US. So-called Fund of Funds invest in a diversified portfolio of various single Hedge Funds.
Vary greatly, but have some or all of the following characteristics. They will be based offshore and are virtually unregulated. They will have small groups of investors, usually rich individuals or institutions. They will aim for an absolute (positive) rather than a relative return; their managers will be incentivised by a performance fee. They will have the ability to go short, and they will have the ability to use leverage.
Are alternative investment vehicles. Hedge fund trading styles are quite variable from one fund to another. Some are Macro Funds which place positions on movements in broad economic groups such as currencies, credit, equity and derivatives markets. Others are more focused on narrow Specialties, such as Convertible Securities or Mortgage Backed Securities. These funds operate as limited partnerships. There are limitations on the number of partners, minimum financial standards and commitments, and liabilities.
have nothing to do with a Hedged fund, in fact the name is an oxymoron. Hedge Funds are usually reserved for high net worth customers who can afford to loose all of their investment.. These funds generally invest in derivatives and other exotic instruments.
Among the biggest operators in derivative markets are hedge funds. Many people imagine that hedge funds are risky and highly speculative. But, properly managed, a hedge fund can be a vehicle for reducing risk. For example, the typical unit or investment trust only takes long positions (it only buys and holds shares), so it does well when shares rise and badly when they fall. In the recent bear market, the buy and hold investment strategy has racked up huge losses. By contrast, many hedge funds have simultaneous long and short positions; as a result they are much less risky in a falling market. Other hedge fund techniques such as arbitrage, taking advantage of price discrepancies in the stockmarket, can also be low risk.
Funds that are subject to virtually no investment restrictions and are free to pursue a highly diverse range of investment strategies (e.g. currency or commodity speculation, shortselling). They can use and combine all types of financial instruments, includingÂ derivatives.Â They are included in the category ofÂ alternative investments.
Hedge funds are a subset of the alternative investment asset class. The term usually refers to private investment vehicles that may utilize a wide range of investment strategies and instruments. Hedge funds include traditional stock and bond investments, but generally combine these with short sales, arbitrage, and leverage, not generally found in traditional stock and bond market strategies. Normally they are structured as limited partnerships, LLCs or offshore investment companies where the general partner receives an incentive fee.
Funds which have the ability to "gear" portfolios by borrowings to increase their exposure to underlying stockmarkets, synonymous with increased risk; or funds which can offset stockmarket exposure either by "short" selling (selling stocks not owned in the hope of buying them back more cheaply at a later date), or by covering the equity position with derivative instruments, normally stock or stockmarket options or futures. These strategies are synonymous with reduced risk, although not immune from losses or lost opportunities.