Hedge Fund

Hedge funds are investment funds that utilize a combination of funds and diverse trading strategies to optimize returns for investors.

These funds trade in a wide range of assets and in doing so can better leverage more complex trading techniques, risk management, and portfolio strategies.

Hedge funds' primary functions are improved performance relative to individual assets, thereby generating improved performance.

This is aided by several different strategies such as short-selling techniques, the use of leverage, or derivatives, among others.

Who Uses Hedge Funds?

Hedge funds are not common to the ordinary retail investor and for good reason.

Their complexity and regulatory authorities in the United States and other jurisdictions often prohibit the lay trader from relying on these relative to more normalized investment strategies.

As such, hedge funds are typically reserved for high net-worth investors, institutional traders, or other similarly advanced traders.

These funds are classified as alternative investments, contrasting notably with the more readily accessible mutual funds and exchange-traded funds (ETFs).

These are much more common amongst ordinary retail traders.

Hedge funds traditionally involve the investment of liquid assets, meaning users can either inject more capital or withdraw it based on the fund’s overall net asset value.

These funds have seen a sharp increase in regulation in recent years given the fallout of the global financial crisis.

The impetus for this was a desire by regulators to better police hedge funds, employing higher oversight and shoring up regulatory loopholes.

Hedge fund managers operate by virtue of fees that are charged by investment managers.

These are usually required on an annual basis, along with a performance fee of the net asset value (NAV).