Definition

Noun: A privately managed investment fund that pools capital from a limited number of accredited or institutional investors. It employs a wide range of sophisticated and often high-risk investment strategies, including short selling, leverage, and derivatives trading, which are typically not permitted for more regulated investment vehicles like mutual funds. The primary goal is to generate high returns regardless of overall market conditions.

Usage and Examples

• Hedge funds are known for their aggressive strategies and high fee structures.
• The investor decided to allocate a portion of his portfolio to a hedge fund.
• Unlike mutual funds, hedge funds are not as heavily regulated by the SEC.

Advanced Usage and Nuances

• "To be hedged": While the term "hedge" implies risk reduction, many hedge fund strategies are designed to seek absolute returns and may actually take on significant risk. The name historically comes from the practice of "hedging" bets, but modern funds often engage in directional speculation.
• Performance Fees: A standard characteristic is the "two and twenty" fee structure, referring to a 2% annual management fee and a 20% performance fee on profits.

Variants and Related Terms

• Hedge Fund Manager (n): The individual or entity that makes the investment decisions for the fund.
• Fund of Hedge Funds (n): An investment fund that invests in a portfolio of other hedge funds, aiming to diversify risk.
• Long/Short Equity: A common hedge fund strategy involving taking long positions in stocks expected to increase in value and short positions in stocks expected to decrease.

Synonyms

• Alternative investment fund
• Private investment partnership

Related Phrases and Concepts

• "To run a hedge fund": To manage the operations and investments of a hedge fund.
  • She runs a successful quantitative hedge fund.
• "Hedge fund strategy": Refers to the specific methodology a fund uses, such as global macro, event-driven, or arbitrage.
  • The fund's hedge fund strategy focuses on merger arbitrage.

Noun

1. a flexible investment company for a small number of large investors (usually the minimum investment is $1 million); can use high-risk techniques (not allowed for mutual funds) such as short-selling and heavy leveraging