What is a hedge fund?

Asked by Sue Hextall

3 Answers

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Answered by Darren Smith, IFA in Basingstoke, HAMPSHIRE
A hedge fund is a lightly regulated investment fund that is typically open to a limited range of investors who pay a performance fee to the fund's investment manager.

Every hedge fund has its own investment strategy that determines the type of investments it undertakes and these strategies are highly individual. As a class, hedge funds undertake a wider range of investment and trading activities than traditional long-only investment funds, and invest in a broader range of assets including long and short positions in shares, bonds and commodities. As the name implies, hedge funds often seek to hedge some of the risks inherent in their investments using a variety of methods, notably short selling and derivatives.

In most jurisdictions, hedge funds are open only to a limited range of professional or wealthy investors who meet criteria set by regulators, and are accordingly exempted from many of the regulations that govern ordinary investment funds. The net asset value of a hedge fund can run into many billions of dollars, and the gross assets of the fund will usually be higher still due to leverage. Hedge funds dominate certain specialty markets such as trading within derivatives with high-yield ratings and distressed debt
| 01.27.11 @ 01:51
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$commenter.renderDisplayableName() — {comment} | 10.23.17 @ 22:40
Answered by Paul Ross DipPFS CII(MP&ER), IFA in Bourne, LINCOLNSHIRE
A hedge fund is a fund that can take both long and short positions, use arbitrage, buy and sell undervalued securities, trade options or bonds, and invest in almost any opportunity in any market where it foresees impressive gains at reduced risk. Hedge fund strategies vary enormously -- many hedge against downturns in the markets -- especially important today with volatility and anticipation of corrections in overheated stock markets. The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions.
| 01.27.11 @ 05:51
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$commenter.renderDisplayableName() — {comment} | 10.23.17 @ 22:40
Answered by D C, IFA in Bristol, DEVON
There is actually no formal definition of a hedge fund. It will not be regulated in the way most funds are regulated, and can take a much broader range of investments and investment strategies than is usual.

They are designed to give maximum returns and often take high risk strategies to do so. Don't confuse this with 'hedging', which is a process many fund managers use to reduce risk. | 01.27.11 @ 09:28
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$commenter.renderDisplayableName() — {comment} | 10.23.17 @ 22:40
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Answered by

Darren Smith
Darren Smith, IFA in Basingstoke, HAMPSHIRE

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