A hedge fund is a type of pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance. Hedge funds are actively managed alternative investments that commonly use risky investment strategies, such as short selling, leverage, and derivatives, to earn above-average investment returns. They are considered alternative investments because their ability to use leverage and more complex investment techniques distinguishes them from regulated investment funds available to the retail market, commonly known as mutual funds and ETFs. Hedge funds pool money from investors and invest in securities or other types of investments with the goal of getting positive returns.
Some key features of hedge funds include:
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Limited Partnership: A hedge fund is a limited partnership of private investors whose money is managed by professional fund managers who use a wide range of strategies to earn above-average investment returns.
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High Minimum Investment: Hedge fund investment requires a high minimum investment or net worth from accredited investors, often targeting wealthy clients.
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Risky Investment Strategies: Hedge funds commonly use risky investment strategies, such as short selling, leverage, and derivatives, to earn above-average investment returns.
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Higher Fees: Hedge funds charge higher fees than conventional investment funds.
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Flexible Investment Strategies: Hedge funds typically have more flexible investment strategies than mutual funds, and many seek to profit in all kinds of markets by using leverage, short-selling, and other speculative investment practices.
It is important to note that financial regulators generally restrict hedge fund marketing to institutional investors, high net worth individuals, and accredited investors.
