A hedge fund is an investment fund that pools capital from accredited investors or institutional investors and invests in a variety of assets, often with complicated portfolio-construction and risk management techniques. However, funds which operate similarly to hedge funds but are regulated similarly to mutual funds are available and known as liquid alternative investments.
The term “hedge fund” originated from the paired long and short positions that the first of these funds used to hedge market risk. Today, hedge funds engage in a diverse range of markets and strategies and employ a wide variety of financial instruments and risk management techniques.
Hedge funds are made available only to certain sophisticated or accredited investors, and cannot be offered or sold to the general public.
Hedge fund managers often invest money of their own in the fund they manage. A hedge fund typically pays its investment manager an annual management fee , and a performance fee . Both co-investment and performance fees serve to align the interests of managers with those of the investors in the fund.
