What are Hedge Funds?

A hedge fund is a private, largely unregulated pool of capital whose managers can buy or sell any assets. The funds speculate on falling as well as rising assets and participate substantially in profits from money invested. A hedge fund generally charges both a performance fee and a management fee and are typically open only to qualified investors.

Hedge funds have experienced a significant surge in popularity over the past several years, especially for experienced investors with significant investible assets. Recently, some hedge fund managers have lowered their minimum investment amounts as a means of encouraging more investors to have access to these types of funds.

As with many alternative investments, these types of investments are not for everyone. Usually, hedge funds are only open to institutional or otherwise accredited investors. Hedge funds are lightly regulated private investment funds often characterized by unconventional investment strategies. They often make use of legal structures, sometimes offshore, to mitigate the effects of local regulation and tax regimes. Hedge funds also have the ability to short, or sell instruments they believe will fall in price. In this way, hedge funds are able to create more complex investment structures which can profit in times of market volatility or even in a falling market.