You don't have to manage a multi-billion dollar fund to be a part of this community! Our various articles are for everyone and anyone who has an interest in the world of hedge fund investment. It is our goal to educate both beginners and seasoned pros alike, while dispelling common myths about this often misunderstood industry of hedge fund investing.
Employing vastly different investment strategies and approaches to risk-management, hedge funds are defined by their structural characteristics, rather than their "hedged" nature.
Hedge funds are primarily organized as private partnerships to provide maximum flexibility in constructing a portfolio. Hedge funds can take both long and short positions, make concentrated investments, use leverage or derivatives, and invest in many markets. This is in sharp contrast to mutual funds, which are highly regulated and cannot easily take advantage the same breadth of investment instruments. While mutual funds are mainly limited to stocks and bonds, hedge funds enjoy a wide variety of investments which may include futures, PIPEs, real estate, art, even website domain names.
Hedge funds typically use a different fee structure for investors than mutual funds as well. While both mutual funds and hedge funds charge a management fee or a fee based on a percentage of total assets under management, hedge funds typically charge a fee based on a percentage of profits, known as a performance fee. The performance fee helps to align the managers' and investors' interests. In addition, most hedge fund managers commit a portion of their wealth to the funds further aligning their interest with that of other investors. Thus, the objectives of managers and investors are the same, and the nature of the relationship is one of true partnership.
Another feature of hedge funds is you must be an accredited investor or a qualified client in order to invest your money. This is one of the very few regulations that hedge funds must abide by and is designed to protect the average middle-class investor from getting into investments they don't fully understand.