Hedge Fund (redirected from Hedgefunds)

Hedge fund

An investment vehicle that somewhat resembles a mutual fund, but with a number of important differences. If the fund is "off-shore", the fund does not have to adhere to any SEC regulations (and can only sell to non-U.S. investors or investment vehicles). These funds employ a number of different strategies that are not usually found in mutual funds. The term "hedge" can actually be misleading. The traditional hedge fund is actually hedged. For example, a fund employing a long-short strategy would try to select the best securities for purchase and the worst for short sale. The combination of longs and short provides a natural hedge to market-wide shocks. However, much more common are funds that are not hedged. There are funds that are long-biased and short-biased. There are funds that undertake high frequency futures strategies, sometimes called managed futures. There are funds that take long-term macroeconomic bets, sometimes called global macro. There are funds that try to capitalize on merger and acquisitions. Another distinguishing feature of hedge funds is the way that managers are rewarded. There are two fees: fixed and variable. The fixed fee is a percentage of asset under management. The variable or performance fee is a percentage of the profit of the fund. There are also funds of funds which invest in a portfolio of hedge funds. Another important difference with hedge funds is that the minimum required investment is usually quite large and, as a result, minimizes the participation of retail investors.

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hedge fund

A very specialized, volatile, open-end investment company that permits the manager to use a variety of investment techniques usually prohibited in other types of funds. These techniques include borrowing money, selling short, and using options. Hedge funds offer investors the possibility of extraordinary gains with above-average risk.

Case Study Even hedge fund managers with an excellent track record sometimes decide to throw in the towel. In March 2000 well-known hedge fund investor Julian Robertson announced that he had decided to close hedge funds managed by Tiger Management LLC, a firm he started in 1980. Saying he didn't understand the booming market for Internet stocks, the value investor who had accumulated an impressive record for beating the market indicated he would return approximately $4.5 billion to investors and retain nearly $1.5 billion of his own funds. Tiger Management had produced a loss of 19% in 1999 and an additional loss of 13% in 2000 up to the date of the announcement. Liquidation of the funds required that investment positions in Tiger Management's holdings, including U.S. Airways Group and Normandy Mining, would be gradually sold so that cash could be returned to Tiger's investors. Robertson announced the closing of his hedge fund just as Internet stocks had peaked and were heading for a major decline in value.

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Hedge Fund

A fund that is allowed to use aggressive techniques prohibited in mutual funds and other funds. That is, hedge funds often engage in short selling, arbitrage, and leverage trading, among others. Hedge funds are exempt from many regulatory requirements; for example, they are often exempt from registration with the SEC. Generally speaking, hedge funds are set up as partnerships into which an investor may buy for a minimum investment, usually anywhere from $250,000 to over $1,000,000. As a result, most hedge fund investors are institutional investors and high net-worth individuals. In order to avoid as many regulations as possible, most hedge funds are limited to 100 investors or less. Like mutual funds, they charge management fees, but, unlike other funds, they often take a percentage of the profits from investors. Hedge funds tend to be illiquid as they often require investors to maintain their investment for at least one year.

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Hedge fund. Hedge funds are private investment partnerships open to institutions and wealthy individual investors. These funds pursue returns through a number of alternative investment strategies.

Those might include holding both long and short positions, investing in derivatives, using arbitrage, and speculating on mergers and acquisitions. Some hedge funds use leverage, which means investing borrowed money to boost returns.

Because of the substantial risks associated with hedge funds, securities laws limit participation to accredited investors whose assets meet or exceed Securities and Exchange Commission (SEC) guidelines.

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Hedge Fund

What Does Hedge Fund Mean?

An aggressively managed portfolio of investments that uses advanced investment strategies such as leverage and long, short, and derivative positions in both domestic and international markets with the goal of generating high returns either in an absolute sense or relative to a specified market benchmark. Legally, hedge funds most often are set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors to keep their money in the fund for at least one year.

Investopedia explains Hedge Fund

For the most part, hedge funds (unlike mutual funds) are unregulated because they cater to sophisticated and ultrawealthy investors. In the United States, laws require that the majority of investors in a hedge fund be accredited. That is, they must earn a minimum amount of money annually and have a net worth of more than $1 million. One can think of hedge funds as mutual funds for the superrich. They are similar to mutual funds in that investments are pooled and professionally managed but differ in that a hedge fund has far more flexibility in its investment strategies. It is important to note that hedging is actually the practice of attempting to reduce risk, but the goal of most hedge funds is to maximize return on investment by maximizing risk. The name is mostly historical, as the first hedge funds tried to hedge against the downside risk of a bear market by shorting the market (mutual funds generally cannot enter into short positions as one of their primary goals). Today, hedge funds do not actually “hedge risk.” In fact, because hedge fund managers make speculative investments, these funds tend to carry more risk than the overall market.

Related Terms:
• Hedge
• Leverage
• Margin
• Risk
• Short Sale