Hedge Fund
A hedge fund is an investment vehicle that pools capital from accredited investors or institutional clients and invests in a variety of assets, often with complex portfolio-construction and risk management techniques. It is administered by a professional investment management firm, and often structured as limited partnerships that provide tax benefits to its investors.
The goal of a hedge fund is to reduce the volatility associated with investing in stocks, bonds, or other traditional financial instruments while generating returns greater than those generated by more conventional investments. Hedge funds are typically open for new investments only periodically (for example, every quarter), so it can be difficult for small investors to invest directly in them unless they have access through some kind of managed account service.
Because they are not subject to many regulations governing mutual funds and other traditional investments, hedge funds can employ more aggressive strategies such as short selling, leverage trading, derivatives trading and arbitrage opportunities that are not available to most retail investors. However this also increases their risk profile; since there is no requirement for transparency or disclosure of information about the underlying holdings within the fund’s portfolio structure. Therefore it’s essential for any investor considering investing in a hedge fund to do extensive due diligence on the fund manager’s track record before investing any money into the fund itself.
