What is a Hedge Fund?
A is a privately managed investment fund that pools capital from a small number of wealthy individuals or and uses a wide range of strategies to generate returns. Unlike regular or , face far fewer regulatory restrictions on what they can do with the money.
What makes different?
Ordinary funds are typically restricted to buying and and holding them. can do far more: , , trading , investing in private companies, making bets on currencies or commodities, and employing complex algorithmic strategies. The name originally referred to funds that their bets by taking both long and simultaneously to reduce risk.
Who can invest in a ?
In most countries, are only open to so called qualified or professional investors. Those with significant wealth or financial expertise. Minimum investments are typically very high, often $100,000 or more, sometimes into the millions. This is not an investment vehicle for ordinary savers.
Do outperform the market?
As a group, no not consistently. After accounting for their high fees typically a 2% annual management fee plus 20% of any profits. The average has underperformed simple index investing over most meaningful time periods. Some individual funds and managers have delivered exceptional returns, but identifying them in advance is extremely difficult.
Why does this matter for a beginner?
Mostly as context. You will hear about frequently in financial news. Understanding what they are and what they do helps you make sense of that coverage. As an investment option they are not accessible to most people, and the evidence suggests that for most investors, they would not be worth the cost even if they were.