Hedge Fund

A hedge fund is a pooled investment vehicle that employs diverse and often aggressive strategies to generate active returns for its investors. Unlike mutual funds, hedge funds are limited to accredited investors and institutions, typically requiring minimum investments of $100,000 or more.

Hedge funds use strategies such as long/short equity, global macro, event-driven, and quantitative trading. They can invest in stocks, bonds, commodities, currencies, derivatives, and alternative assets. The name comes from the original concept of hedging risk, though many modern hedge funds pursue high returns rather than risk reduction.

Hedge funds typically charge a 2% management fee plus 20% of profits, known as the two-and-twenty structure. This fee structure has been criticized for being expensive relative to performance. Many hedge funds have underperformed simple index fund investments over extended periods.