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What are hedge funds ?

Hedge funds are alternative investments using pooled funds that employ different strategies to earn active returns, or alpha, for their investors. Hedge funds may be aggressively managed or make use of derivatives and leverage in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).

It is important to note that hedge funds are generally only accessible to accredited investors as they require less SEC regulations than other funds. One aspect that has set the hedge fund industry apart is the fact that hedge funds face less regulations than mutual funds and other investment vehicles.

KEY TAKEAWAYS

  • Hedge funds are actively managed alternative investments that may also utilize non-traditional investment strategies or asset classes.
  • Hedge funds are more expensive compared to conventional investment funds, and will often restrict investment to high net-worth or other sophisticated investors.
  • The number of hedge funds has had an exceptional growth curve in the last 20 years and has also been associated with several controversies.
  • While the performance of hedge funds as beating the market was lauded in the 1990s and early 2000s, since the financial crisis, many hedge funds have underperformed (especially after fees and taxes).

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