hedge fund

(redirected from Hedge funds)
Also found in: Dictionary, Thesaurus, Encyclopedia.

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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Hedge Fund

A pool of liquidity 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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

hedge fund

a pool of capital which fund managers (for example, international banks) used to speculate on the foreign exchange, stock and commodity markets. Fund managers aim to make windfall profits by ‘correctly’ guessing future price movements. Their activities, which have become increasingly global and largely unsupervised by national regulatory frameworks, have, on occasion, served to destabilize the financial markets. See HEDGING, OPTIONS, FORWARD MARKET, DERIVATIVE.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
References in periodicals archive ?
Best found that the insurance industry overall cut back its hedge fund investments to $16.4 billion in 2017, an 8.5 percent drop from $17.9 billon in 2016.
' Time Portfolio Asset Management, one of the nation's leading hedge funds, posted a 35.63 percent return through its hedge fund product, the Time-M, since the product's launch in May 2016.
The Little Book on Hedge Funds is a book written by a veteran- an insider and a creator of a hedge fund.
Asia ex-Japan mandated hedge funds were up 20.64 per cent in 2017, their best showing since gains of 38.85 per cent in 2009.
As a result we expect the closure rate to continue to rise for small and mid-sized hedge funds."
Hedge funds also added an extra 6 million barrels of short positions in the main US gasoline futures and options contract.
The big issue for observers is defining a real hedge fund as opposed to a highly correlated leveraged fund, or funds that run large net long positions versus true hedging.
Competition has become particularly apparent in the fees institutional investors are paying to invest in hedge funds. The industry standard has long been the so-called two-and-twenty model, in which managers earn 2 percent on assets under management, plus 20 percent of profits returned - arrangements that Berkshire Hathaway CEO and perennial hedge fund critic Warren Buffett recently said "eat up capital like crazy."
It's beyond the show's scope to explain how hedge funds became such a disruptive force in our economy and our politics, or to distinguish them from other investment firms, rather than using them as a signifier for "Wall Street jerk." In fact, amid the twists and turns, Billions barely even begins to explain what a hedge fund does.
Based on these trends among hedge fund managers, S&P Capital IQ also produced a Trends & Ideas research note, which names specific ETFs that are weighted toward the stocks named in the 2015 second quarter Hedge Fund Tracker.
One success story in hedge funds is the Missouri State Employees' Retirement System (MOSERS), which, ending its last fiscal year (June 2014) at $9.3 billion in total fund assets, is less subject to the constraints of scale and manager selection.