Hedge Fund

Hedge fund

A hedge fund is a private investment fund which may invest in a diverse range of assets and may employ a variety of investment strategies to maintain a hedged portfolio intended to protect the fund's investors from downturns in the market while maximizing returns on market upswings.

Hedge funds are distinct from mutual funds, individual retirement and investment accounts, and other types of traditional investment portfolios in a number of ways. As a class, hedge funds undertake a wider range of investment and trading activities than traditional long-only investment funds, and invest in a broader range of assets, including equities, bonds and commodities. By taking a long position on a particular asset the manager is asserting that this position is likely to increase in value. When the manager takes a short position in another asset they would be asserting that the asset is likely to decrease in value. Most hedge fund investment strategies aim to secure positive return on investment regardless of overall market performance. Hedge fund managers typically invest their own money in the fund they manage, which serves to align their interests with investors in the fund.[1][2] Investors in hedge funds typically pay a management fee that goes toward the operational costs of the fund, and a performance fee when the fund’s annual return is higher than that of the previous year. The net asset value of a hedge fund can be billions of dollars, due to investments from large institutional investors including pension funds, university endowments and foundations. Worldwide, 61% of investment in hedge funds is from institutional sources as of February 2011[update].[3] As of 2009[update], hedge funds represent 1.1 percent of the total funds and assets held by financial institutions.[4] The estimated size of the global hedge fund industry is $1.9 trillion.[5]

Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet...